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Morningstar | Paccar's Premium Brand Strategy Continues to Benefit From a Robust Heavy-Duty Truck Market

Since entering the heavy-duty truck market in 1945, Paccar has carefully fashioned unique and premium global brands in the manufacturing sector. Operating under the Kenworth, Peterbilt, and DAF (for the Europe and Brazilian markets) brands, the company has consistently ranked as one of the largest manufacturers of 18-wheelers. It has been able to achieve its strong market position against several deep-pocketed players, such as Volvo, Daimler, and Volkswagen, through a combination of market segmentation and customer and dealer financing capabilities. Unlike its competitors that historically sought business from large carriers, which possessed strong bargaining power, savvy Paccar focused on the overlooked owner-operator segment. Additionally, with more than 2,100 dealers in 103 countries and a strong captive arm, Paccar has met the challenges of its diverse customer base. Paccar’s vigorous devotion to the needs of independent truck drivers, which we estimate make up about 60% of the overall North American fleet, has allowed the company to garner customer loyalty, and even more impressively, premium pricing. Indeed, Paccar’s strategy has succeeded--over the past decade, it has consistently maintained its premium market position, controlling around 29% in the North America heavy-duty truck segment, 17% in Europe, and 35% in Mexico. As the industry has evolved with increased regulations on engine emission standards and thus equipment cost structure, Paccar has also advanced its operational strategy to better withstand margin compression. Over the past decade, Paccar has shifted from its historical role as an assembler of truck components to in-sourcing. In fact, today, 40% of Paccar’s Kenworth and Peterbilt trucks and nearly all of its DAF vehicles include its manufactured engines, reducing supplier power concerns. Additionally, Paccar is improving operating efficiencies for its manufacturing and distributing facilities. We believe that Paccar’s strategy and product differentiation will allow it to stay competitive in its well-defined niche market.