Detroit Diesel Corporation | New Ownership in the Late 1980s
New Ownership in the Late 1980s
The company did not look long. Roger Penske, the famous auto racer and wunderkind of the auto business world, was immediately intrigued at the prospect of reviving the lumbering old giant of the auto industry. By early 1988, Penske and GM had signed an agreement wherein Penske obtained ownership of 60 percent of Detroit Diesel's stock and GM secured the remaining 40 percent. Penske retained much of the old personnel at Detroit Diesel, continuing to employ engineers and management who had a long association with GM. Rather than overhauling the company by purging it of its old brass, he simply realigned the corporate goals. As reported in Financial World in 1988, he eliminated redundant computer costs and consolidated manufacturing operations in an effort to cut the operating budget by more than $70 million. However, he kept such longstanding Detroit Diesel employees as L.F. Koci, Detroit Diesel general manager at the time of the takeover.
In order to revive Detroit Diesel, Penske had to get results quickly. Within the first two years of independent operations, Detroit Diesel had more than doubled its market share. By 1993, this share had risen to 26 percent, mostly at the expense of its arch rival Cummins. Although under Penske's management revenues grew by more than 60 percent, heavy investments in research and development reduced profits to only 1 percent of sales. This low level of earnings, combined with a depressed American economy, led to two consecutive years of losses in 1990 and 1991. In the long run, however, Penske's persistence seemed to pay off: the company rebounded in 1992 and had a net income of over $20 million in 1993.
Aside from some cost-cutting measures and reorganization of the company, the early success of Penske's Detroit Diesel came on the strength of one item: the Series 60 engine. According to Business Week in 1991, the electronically controlled Series 60 engine was "ground-breaking" and, in addition to offering "dramatically better fuel efficiency, it boasts nifty computerized features that diagnose mechanical problems and can monitor engine use—and thus track driver productivity." The Series 60, the first engine of its kind to be electronically controlled, was introduced during the first quarter of 1987. It was the product of a "clean-sheet" design that applied the latest technology to every stage of the manufacturing process, including production, assembly, and testing. Detroit Diesel originally claimed the engine needed an overhaul only once every 500,000 miles. The company later extended this boast to 750,000 miles. Over the next several years, the truck engines seemed to hold up well, and the $82 million that the Series 60 had brought the company by 1993 suggested that Detroit Diesel had overcome its reputation for unreliable products.