Copyright © 2000 The Seattle Times Company

-- SALES OF NEW big trucks are dwon substantially this year in North america after a decade of gains, putting the brakes on profit gworth for the Bellevue comapny known for its Peterbilt and Kenworth rigs,

Big rigs are designed to take punishment from the elements of Mother Nature and the road, but every few years they take a beating from the economy. That's the painful reality these days, as the trucking business faces a reckoning.

New-truck orders in North America are down between 30 percent and 50 percent this year compared with last, fuel prices are up and higher interest and insurance rates make it tougher to buy new and used trucks.

"Everybody's feeling the crunch," said Dan German, a trucker from Council Bluffs, Iowa, while taking a smoke break at a truck stop near North Bend. "With fuel up twice as much as it was, insurance, permits and truck payments, it's real tough. I know three guys who just got out."

That is the not-so-pretty picture facing Paccar, the Bellevue-based maker of heavy-, medium- and light-duty trucks. Best known on North American roads for its Kenworth and Peterbilt brands, it has the reputation for having the most-expensive and highest-quality rigs on the road, and for its evangelistical network of dealers and drivers across the continent.

In Europe, it is known through DAF, Foden and Leyland trucks. Those diversifying acquisitions of the last decade, plus an increasing emphasis on aftermarket parts and new-truck financing, have enabled Paccar to emerge quietly as the world's second-biggest truck company, with $8.6 billion in annual sales and 20,000 employees worldwide.

The financial numbers have made Paccar proud, but humility is back. This year is shaping up to have the roughest truck-market conditions in at least seven years, and perhaps since the inflation of the late 1970s and early 1980s. Through it all, Paccar is expected to remain in the black. Every year since 1939, it has trudged through war, inflation, high interest rates and oil crises to churn out profit while others were bought, merged or went bankrupt. Last year, it had a record profit of $583 million. This year, as it gears down production and lays off hundreds of workers, it is still expected to have $445 million in profit.

The strategy essentially is to hope and work for the best, but be prepared to thrive through the worst.

"We have the ability to turn off the spigot and turn it on," said treasurer Ron Ranheim. "In a cyclical market, we have to have the ability to do that, and we do."

That ability comes at a price. There have been several temporary plant shutdowns around the country to curtail production. In its characteristic close-to-the-vest style, Paccar won't officially say exactly how many, but sources said it has laid off about 500 workers in Renton, 500 in Chillicothe, Ohio, and 430 in Madison, Tenn.

Paccar's top competitor, Freightliner, has announced layoffs of 3,700 workers. Navistar International let go 1,100 white-collar workers and laid off 1,300 assembly workers. And the layoffs may not be done yet.

The slowdown is likely to last at least until spring, when fleets are expected to start buying trucks before tougher fuel-economy regulations kick in for 2002.

Interestingly, analysts lay the blame for the slump as much on the industry as the economy. In a battle for market share, facing a year-long backlog of truck orders and a bustling freight industry, truck makers got carried away with overbuilding, they say.

"Many in the industry were Pollyanish," said Tobias Levkovich, an analyst for Salomon Smith Barney in New York. "They were only looking at the silver lining, that they had a backlog of orders, without looking at new orders. Now the correction may be more severe than maybe it had to be."

Paccar executives take pride in a lot of things, and especially in the company's ability to weather the industry's painful cycles, its reputation for disciplined and lean management, and its image of efficiency and quality.

"We have always had a strong focus on profit, quality and customer satisfaction, and we let the results speak for themselves," said Ranheim.

That sounds conservative, and it is. Conservative is the word those who work there seem to use to describe the company's ethos, from the dull 13-story headquarters in downtown Bellevue, to executives dressed in suits, to the hardwood tables and chairs in conference rooms.

The conservative ethic can be seen in a June balance sheet that showed a whopping $935 million in cash on hand, enough to easily leverage a big-league buyout of a struggling competitor.

Although Paccar has been linked to truck giant Navistar International in preliminary acquisition talks, it is known for taking its time and being cautious in its acquisitions. It says it is careful not to get too big a head when times are good, to keep its product development secret, and to rarely toot its own horn.

The low profile is so extreme that the company has had only one book written about it - a company-commissioned history called "Paccar - The Pursuit of Quality." That lack of visibility is unusual considering its standing in the Fortune 500 next to ink-stained heavyweights such as Staples, Nike and General Dynamics.

Ranheim said the company is interested in promoting its brands, but not in touting itself. That quiet philosophy is best understood on a trip through a truck stop.

Drivers take care of the hype. "I'll drive my next Pete' 'til I quit or die," said David White, a trucker from Chattanooga, Tenn., while stopped in North Bend. "I'd never drive anything else. They're the best."

Paccar likes to say its never-ending focus on quality has built its reputation and, more than anything, will sustain it through good times and bad.

Wall Street sometimes takes a dim view of that ethic, saying Paccar is run more like a private company for the long term, rather than a public company geared toward quarterly earnings, analyst Levkovich said. The street's displeasure has been going on for months, with Paccar stock lately trading in the high $30s, down from its yearly high of $54.25.

Still, the conservative culture hasn't bent. The company's philosophy goes back to 1905, when William Pigott founded Seattle Car & Foundry, a company that made rail cars and logging equipment.

Through growth and a merger, the company became Pacific Car & Foundry and during World War II it switched gears to make more rugged things, such as Sherman tanks, steel tugboats and dry-docks.

It didn't get into heavy trucks until it bought Kenworth in 1945, and became a more serious industry player with the purchase of Peterbilt in 1958. Both companies were considered among the best, and Paccar was intent on keeping them there.

Pigotts have led the company virtually throughout its history. Charles M. Pigott led the company in its modern history, from 1965 to 1996, when he was succeeded by his son, Mark.

Charles Pigott is known throughout the Puget Sound area for serving on the Boeing board of directors and as president of the Boy Scouts of America, as well as his activity in Republican causes. He is a member of The Seattle Times board of directors, but has no ownership stake.

Under Charles Pigott, the company changed its name from Pacific Car & Foundry to Paccar in 1972. It diversified with purchases in the European market and increased its emphasis on aftermarket parts and new-truck financing, operations that would be more stable and profitable during downswings.

In 1982, Paccar found itself fighting a recession the same way many of its competitors were - by laying off thousands of workers and trying to design a lighter, more aerodynamic truck.

In 1985, it unveiled its answer: the Kenworth T600. The truck was able to get 22 percent better mileage through its swept-back fenders, lightweight polyurethane bumpers, fuel tanks, air cleaner and better battery-box placement. Although many truckers preferred to stick with the rugged, conventional look, the T600 was a hit, capturing 40 percent of Kenworth's sales in its first year.

By 1992, after another industry slump, Kenworth's engineers tried again to get an edge. After spending four years and $100 million of development and testing, the more aerodynamic truck hit the road - the Kenworth T2000. The truck was designed with more lightweight composite materials that reduced wind drag, improved fuel economy 3 percent, reduced cab weight to allow for heavier payloads, and cut the number of parts by 30 percent.

The company's fundamentals do not appear to have changed under Mark Pigott. The younger Pigott, 46, has risen through the ranks at Paccar to take over for his father. Ranheim said there are more similarities than differences in how the son manages the company, and analysts seem to agree.

But Mark Pigott has pushed the company further into the digital age, with an Internet-based format for purchasing parts from suppliers and a system for alerting truck drivers of traffic congestion along planned routes and mapping out best routes. He also has presided over setting up a 24-hour call center for truckers who need repairs or parts.

Unlike other companies, Paccar has been careful not to ruffle feathers among its loyal dealers by circumventing them through selling directly over the Internet. That way, drivers take their trucks in for parts and service at a happy dealer.

The leaders of the Kenworth plant in Renton talk a lot about efficiency, and it does show. The plant was built in 1993, when other truck makers were cutting back during the last major truck recession. Last month, Fortune magazine named the plant one of America's elite factories.

Some of that acclaim comes from how Paccar started with a plant designed to build 16 to 18 customized trucks a day, and turned it into one making 50 a day without physical expansion. These days, production is down to 36 to 38 a day, and it's clearly posted on a digital billboard for all to see.

Another simple innovation happens down the line where bulky diesel engines are lifted onto frames. Plant manager Tony McQuary points to how a computerized hoist lifts the engine and balances it into place, instead of using workers to do the delicate and back-wrenching task.

There's very little inventory, only enough to build trucks for a day or two. Engineering drawings are accessible by computer instead of paper.

Instead of standing on a ladder to install horns and lights on top the cab, workers can put them in at ground level after a lever tips the cab on its side. Workers who used to walk all over the plant to get parts now have them at their fingertips to save time.

Building custom trucks involves many details that vary from truck to truck. Because of recent efficiencies, such trucks can be built within two to four weeks of receiving the order, faster than the industry's typical eight weeks.

With trucks built to last 1 million to even 2 million miles, emphasis is on the details. McQuary shows how "huckbolts" are used to fasten body panels together rather than the rivets used on competing trucks. The bolts take more time to fasten, but they prevent the squeaks, rattles and noise that bug drivers in the long run.

Beyond that, there are all kinds of amenities such as couches, sleepers, refrigerators and even satellite TVs. When they're fully equipped, trucks can cost $125,000 apiece or more.

Shane Moore, an assembly worker at Kenworth factory in Renton, said the plant's pace is fast and technical, and it's hard for some people to keep up. The ones who stay tend to stay a long time, and are hard workers who enjoy the technical variety.

As for plant management, Moore said workers appreciate how they don't go into denial or stonewall when a downswing is coming. They are frank and open about cuts, and he said relations between the company and its unions seem to be good.

Although workers who are getting laid off obviously don't like it, they are all warned in new-employee orientation that the truck business is cyclical and they could someday be casualties.

"They say these are the facts, and this is how it is. It helps get you mentally prepared," Moore said.

McQuary agreed that helps soften the blow to workers, but he's not sure how deep the goodwill runs. He doesn't sugarcoat the likelihood that the economy will snap up many of his laid-off workers, but he hopes the company's reputation will help it avoid that potential problem.

"You hate to let good people go, but fortunately we have people who have been through cycles before," McQuary said. "Paccar has always believed in taking care of its people. They (workers) know the company will weather the storm and they can come back to work here."

Luke Timmerman's phone number is 206-515-5644. His e-mail address is

Copyright © 2000 The Seattle Times Company

Paccar Founded: 1905 Headquarters: Bellevue Chairman and CEO: Mark C. Pigott Employees: 20,000 worldwide Focus: Heavy-, medium- and light-duty trucks, aftermarket parts, truck financing, winches. 1999 profit: $583.6 million 2000 profit estimate: $445 million 2000 stock performance: High, $54.25; low $38.06. Friday close: $38.50 Lead product: Kenworth, Peterbilt and DAF heavy-duty trucks. Factories: Renton; Seattle; Chillicothe, Ohio; Denton, Texas; Madison, Tenn., Ste. Therese, Quebec; Eindhoven, Netherlands; Westerlo, Belgium; Leyland, Great Britain; Mexicali, Mexico; Bayswater, Australia.

Paccar history

1905: Founded by William Pigott Sr. as Seattle Car Manufacturing, a maker of rail cars and logging equipment. 1917: Merges with Twohy Brothers of Portland; renamed Pacific Car & Foundry. 1941: Renton plant builds Sherman tanks, steel tugboats and dry-docks to support the war effort. 1945: Enters heavy-duty-truck market by buying Kenworth Motor Truck of Seattle. 1958: Solidifies position as heavy-duty-truck maker with purchase of Peterbilt Motors. 1960s: Fabricates steel used to build the Space Needle. 1972: Adopts new name: Paccar. 1980s: Top competitor International Harvester files for bankruptcy; mass layoffs occur in industry. 1982: Opens Technical Center in Mount Vernon, with a test track and other measures to study and improve truck durability and quality. 1985: Introduces aerodynamic Kenworth T600. 1996: Buys DAF Trucks, a major player in the European truck market. Introduces lighter, more aerodynamic Kenworth T2000. 1997: Charles Pigott retires after 31 years of leading the company. Son, Mark, is successor. 1998: Buys Leyland Trucks, further solidifying its position in Europe. 2000: Reports surface that executives are in preliminary merger talks with Navistar.

Sources: Company records, "Paccar - The Pursuit of Quality, Third Edition," news accounts.