Daf invests in DAF Trucks
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people and plant
SINCE 1972 Europe has been gripped in the vice of recession. Recession has almost become an obsession halting progress. This has the effect of curbing experiment and innovation. Mr Aart van der Padt, chairman of Daf Trucks, tells how his company has not only survived but expanded and is planning and investing for the future.
DAF TRUCKS employs 8,600 people, including 6,000 in the Netherlands and the annual turnover in the UK is 1.6 billion guilders (£381m). Despite making a loss in 1983, Daf financed a 600 million guilders (£143m) innovation plan for new products and new production techniques. There was a move to consolidate the company.
The Daf shares, held by International Harvester of America, were bought back into Holland. Also shorter working hours were arranged to avoid compulsory redundancies.
Mr Aart van der Padt explains here how he sees Daf now and where it is going.
According to the chairman, anyone who regards Daf as merely a chassis manufacturer is short-changing the company. It has other activities too. There is the Special Products Division where Daf carries out major projects that are not chassis related. The Parts Division is a division which operates in a market of its own and sells spare parts for Daf products but also other equipment. There is the Diesel Division which sells main components, engines, axles and cabs to third parties and their own customers. The Bus Division sells bus chassis for city buses, inter-urban buses and touring coaches.
Daf also has a finance company. It is cv related, in the sense that it operates in the cv market, but it is a completely independent activity which provides a contribution of its own.
But Daf will always be a chassis manufacturer in the public eye. How important is it in mainland European terms? Mr van der Padt was not displaying false modesty in his reply. "I always say; we are the smallest of the manufacturers that really count."
"There are only a few manufacturers that really count. The others are Volvo, Scania and Mercedes, who, like us, are
genuinely represented all over Europe. There are really only four manufacturers who have subsidiaries in every country in Europe and can provide service. We are, of course, the smallest but we always say: our products are better in most respects and that's what matters for us."
That was a bold statement, so what about market share? Van der Padt says that in spite of the recession they have managed to improve their market share in Europe continually since 1975 and "certainly in the last four or five years," Market share is one thing but with a falling total market and heavy discounting how strong is Daf in financial terms? So far the eighties have been lean years and Daf operated at a loss in 1983. But in spite of this the company made investments and borrowed a lot of money in this period.
Van der Padt believes that management must have complete confidence in the company; the people; the products. He says that a long-term policy cannot be based on the results of one year. On the strength of Oaf's past performance, he is convinced that the product will enable Daf to hold its own against the competition for many years.
This will entail hard work. The future has to be earned now, and be secured by the people who are working at present.
In very many cases inside and outside the world of road transport, investment in the future has resulted in over extension financially. Has Daf perhaps over-extended? They after all finalised a huge finance package in 1983.
The finance package totalled 600 million guilders (f143m). About 200m guilders come from depreciation or from normal business operations. That leaves 400m guilder. At least 100m guilders come from the renewal of redeemed loans. Around 200m guilders is in the form of a development credit which the Dutch Government gives to finance advanced technology. It is risk capital and that means that Daf has to recoup that money in the future with new products. "That is possible because we are laying the foundations today. We are going to develop the most modern products and adopt the most up-to-date production techniques. We shall not only keep up with competitors but get ahead of them. We shall then have to repay the development credit to the government," explains the chairman, Being risk capital, it will only be repaid if they are successful with the new products. On the credit side, Daf are making use of facilities that are also used by other Dutch companies.
They made big news in Europe when they obtained a development credit. This is a facility that is available to industry in the Netherlands and is used by many of the companies. Daf are, of course, one of the larger companies, but it is not the biggest development credit ever given: there are companies that have bigger grants according to Daf.
What would happen if things went sour or the grant was used for loss funding? Van der Padt says, "We have never had any loss-funding. Of course, we have had subsidies or investment grants but they are normal government instruments available to any other company. We have never received any payments to
offset losses. But there are various companies which, when they were in a very precarious state, received 50, 100 or 200m guilders lE48m) from the Government. That's never happened to us."
Daf's 1983 was far from happy due to a combination of factors — the most serious one was over capacity of falling exports. In the early eighties European manufacturers were able to offload their surplus production in the Middle East and Africa. In 1983, over and above the poor market in Europe, which was already beginning to stabilise, there was a dramatic drop in the Middle East and Africa. That occurred almost overnight and caused a massive overcapacity in Europe. The result was not so much a fall in volumes but rather a terrific battle for the market and consequently price-cutting — British manufacturers suffered in the same way and Leyland's Bathgate problems have been blamed on this situation.
However, it appears that things are changing at Eindhayen. Van der Padt says that in the last few months there have been substantial improvements in sales. He claims that Daf's sales volumes are returning to the pre-recession level. "This has been going on for more than six months, so it may be regarded as a most positive development. As far as prices are concerned, we reached rock-bottom in the middle of last year and a gradual improvement is now taking place," he says.
How much of this improved situation is due to Daf and how much to economic recovery? Here Daf is generous and shares the credit. They say that sales organisation must be alerted and the company must be aggressive. "But you only get results if a recovery is occurring."
It is their view that long-term planning is important despite periodical set-backs.
Planning and financing the future is an expensive operation especially if the sums are wrong, but like all top industrialists, van der Padt believes that the essential thing about the future is that it has to be earned today. "If we do our work well, our successors may have cause to be grateful. Our efforts today are the only guarantee for the future. There is, of course, a certain continuity. It takes years to develop a vehicle. The customer runs a vehicle for many years and there is always a need for spares, repair and maintenance for many years," he says.
In his terms this means that the manufacturer can count on a certain flywheel effect and that there will be revenue and sales for many years based on today's sales.
Daf, like many other manufacturers has co-operation deals with other companies, but does not think that co-operation means surrendering part of their autonomy.
They take the view that coopeation has advantages and disadvantages, but believe that the advantages far outweigh the disadvantages.
However, partners do not stumple over each other in the European markets. They meet in the market, but it is not a confrontation. Enasa is a competitor and a partner with Daf which makes the Dutch company a 42nd cousin of Seddon-Atkinson.
Daf sees the co-operation as a cost reducing profit making exercise and that Des identity will not be lost.
Daf's management places great faith in its work force. They believe that through the mentality of the people who work there and the spirit and the atmosphere within the company this creates a feeling of belonging. There is, they claim, a will to make quality products, a creativeness in people which produces new ideas in all fields. "They are people who live for their work, think about it and study for it in their own time." Van der Padt points to the flexibility of Daf people who have surrendered part of their wages to save the jobs of several hundred fellow employees. They are willing to work day and night or on Saturday and Sunday to solve a serious breakdown in the factory. "That's what the people are like here, and it constitutes the unique basic strength of this company," he says with pride.
Taking all things into account however, there must always be a question mark against growth potential. Not in van der Padt's mind. He says there is still plenty of scope for expansion and the opportunity to strengthen Daf's position in Europe. In some markets their market share is between seven and 10 per cent. In the Netherlands and Belgium, their home market, the share is understandably higher. Their objective is to attain at least seven per cent in the other European countries. They have launched a policy of selling Daf products outside Europe. Already they operate in the Middle East and Africa. They are now making moves outside those regions and are opening a subsidiary in Australia. "It is quite possible that we shall proceed further in this direction and may create the possibility of full, worldwide representation," he says.
Daf's mainstream business is of course commercial vehicle production but they do not neglect their other activities.
The Special Products Division strategy is to work on a number of large projects, supplemented by some smaller ones. In principle, they look for two or three large projects, preferably not related to the cv operation, so as to be able to maintain a more independent stance. be able to maintain a more independent stance.
They have found no difficulty acquiring large projects. If the economic upturn continues, they feel it should be possible to obtain more. The division is equipped for this purpose. They say they have the people, the know-how and they have the technology to carry out large projects. They believe Special Products Division could continue to play a highly individual role within the company for many years.
Among the large projects there is the new aviation department. They started by making landing gears, and are now producing other aircraft parts which require the same technology and the same manufacturing quality. They will continue to make landing gears for civil aircraft and other parts for aircraft, including helicopters, such as steering controls and actuators.
Daf claim to be 100 per cent customer-orientated as do other manufacturers. But what does it mean? According to Van der Padt it is one of the advantages of being small. "On the whole, it can be said that we know our customers but we have developed a number of techniques giving us better contact with them so that we can serve better."
One of the ways in which Daf says it can serve its customers better is with their TOPEC programme. This is a computer programme which helps the customer to select the most suitable vehicle. They say its is unique but Mercedes might argue. They have an International Truck Service; also unique. This, they claim, provides customers with service day and night and gives them credit facilities. The unique claim here could again be challenged.
These services are backed up by a finance company (which other manufacturers also have) and sales support by service parts. Of course, the others have these facilities, too.
Mr van der Padt claims another unique feature in Oaf's sales engineering. Here a separate group of technicians work in the sales department.
They maintain a continuous dialogue with the customers and help them to adapt their vehicles to their specific requirements.
This service is provided not only in the Netherlands but also in all their other markets. The group acquires knowledge of specific customer requirements which are fed back to the de velopment department. They have customers visit the factory and directors and members of the management board are present at exhibitions for direct contact with the customers. "Our size is an advantage in this respect but it is mainly a question of mentality. The right mentality is needed from the draughtsman through to the salesman. Ultimately, we live by grace of the customer. As far as mentality is concerned, we do indeed have a lead on our competitors — we must fight against internal bureaucracy. We have this advantage and we must keep it," says the chairman.
It must be said that here that Daf is not alone in customer involvement with factory visits or presence at exhibitions. Nor is it the pressure of the smaller companies.
How will Oaf's investment in new production techniques affect its staying levels?
According to the company it will certainly mean a reduction in total numbers in the longer term, but they say it will be mitigated by production growth over the years. The growth will help to compensate for the loss of jobs and the shorter working week is another way of softening the impact.
Van der Padt says "The decrease in employment caused by automation will be mitigated by growth; by the shorter working week and by new activities. Another aspect of automation is that it will improve the quality of work in both factories and offices. This means that we shall gradually need more highly qualified people. This fits in very well with the social development that the people, who now offer their services in the labour market, are better schooled than their predecessors."
The phenomenon of people accepting a large cut in their wages to save jobs at Daf Trucks is not likely to be repeated. "that was a typical Daf affair. It was proposed by the people, by the trade unions and by the works councils as an alternative to pretty drastic redundancies. People were willing to surrender part of their wages because there was a clear relationship with saving the jobs of fellow employees. I do, however, believe that for many people there is a limit to surrendering wages.
Mr van de Padt naturally believes in his product but is not at may no longer be good in five to ten years time. Product development must be kept up-todate and ahead in some res pects.
Without innovation, he says that products would age and in five to ten years would lag behind competitors.
Daf say they invest in two things. First there are new pro ducts and new components. Secondly the new production techniques.
Assembly is moving into computer-controlled machines. First of all, at the engine factory the machines will be used to manufacture the cylinder heads and rear axle housings.
What of the cv chassis of the future? Mr van der Padt sums it up this way: "You'll still have to think of ordinary trucks on rubber-tyres wheels powered by diesel engines. The new features will be the use of lighter materials, permitting higher payloads, and lower fuel consumption, longer maintenance intervals, reduced air resistance, less noise, the use of the latest materials and the application of electronics, making transport management easier and more efficient for the user. In some areas there will be certain breakthroughs, completely new innovations, but in its totality it will be the same familiar vehicle."