(FORTUNE Magazine) – When you watch a trial production run at International Truck & Engine Corp.'s revamped truck-building line in Springfield, Ohio, it's hard to believe you haven't stumbled into a plant for making sleek passenger cars. Gangs of brand-new spot-welding robots--just what you'd find in a modern car facility--zap together steel truck cabs from components made on a quartet of huge German stamping presses. The presses are fed sheet steel by material-handling robots, which move the parts from press to press as successive hits by massive dies form them into the roofs, floors, and door panels that make up a cab. There's a forest of machinery in the $137 million cab-fabrication building, and not a lot of people.

Stealing a leaf from the automakers' book is the whole idea behind an ambitious "next-generation vehicle" program in medium trucks that's costing International $900 million. Those are big poker chips for Navistar, International's $8.5-billion-a-year parent company, wagered at a time when the whole motor-vehicle industry is in a downturn. But International has vowed to defend and expand its No. 1 position in the Class 5 to 7 medium-truck market by cutting production costs while introducing freshly designed vehicles built to carlike quality standards.

At a February bash in Las Vegas, International will unveil the new medium trucks, called the 4000 series, for its dealers and prime customers. Over the next two years more models will be introduced to replace all but the heaviest trucks in International's lineup. The new models are designed to appeal to owners eager to hold down operating costs. They will also be considerably less expensive for the company to build. Using modular components that are shared as widely as possible, International will replace 80% of its current truck and school-bus models.

"This is the largest single investment in the company's history, and it's unprecedented in the medium-truck world for a new-product program," says John Stark, publisher of Stark's Truck & Off-Highway Ledger, which follows truck manufacturing. Daring, too, because International is introducing a costly car-building production system in a truck business with far lower volumes. Last year the company produced 56,500 medium trucks; a typical car plant cranks out 100,000 or more vehicles, and in fewer variations.

Class 5, 6, and 7 trucks are those proletarians of the streets and highways used for jobs like delivering furniture, plowing snow, hauling dirt, and towing away broken-down vehicles. Instead of pulling a trailer the way a horse pulls a wagon, these two- and three-axle "straight" trucks carry the load on their backs like a pack mule. A typical delivery truck sells for about $50,000. International builds only the chassis, equipped with cabs and diesel powertrains. Depending on what the customer wants, it ships these to independent body builders, who fabricate a body for a garbage truck, an armored car, a telephone lineman's vehicle, a fire engine--the list goes on and on--atop the bare frame rails. The exception is school buses: International builds the entire vehicle.

International has a dominant 36% share of the Class 5 to 7 medium-truck segment--down a bit from 38% in 1997--followed by Ford, GM, and DaimlerChrysler's Freightliner, in that order. The battle is about to get a lot rougher and the stakes bigger. Says Stark: "Both International and Freightliner are coming out with redesigned medium trucks at the same time, and they will be fighting for share in a declining market. Senior management at Navistar will be heroes if everything falls into place. But if this next-generation vehicle fails, Navistar will be in deep trouble, and it will be forced into the arms of a suitor."

One of International's goals is to build its medium trucks with 40% fewer hours of labor. It also aims to save on purchasing and inventory costs by slashing the complexity of the product line. Says Navistar CEO John R. Horne: "Our current medium truck has more than 800 combinations of engines and transmissions. It's nuts. The new truck has just 34 combinations, and every one of them works better than before because our engineering people had the time to really develop them so they feel good to the driver." To help winnow those combinations, International has also reduced the variety of medium-duty diesel engines that it puts in its trucks. It is in the midst of a multiyear, $1 billion program to lower its engines' emissions and improve fuel economy.

By seriously narrowing the range of components the customer can choose from, International is breaking with tradition in an industry where the variety of options--axles, brakes, and other features, as well as engines and gearboxes--is mind numbing. "In the truck industry you can run an assembly line for months without building two identical trucks because they are so custom-specified," observes Ron Harbour, president of the manufacturing consulting firm Harbour & Associates in Troy, Mich. "The big efficiency issue in truck manufacturing is all this complexity."

The redesigned 4000 series trucks have a lot of driver-friendly improvements. They're also nice to look at, with a fresh new face incorporating wraparound motorcycle-style headlights, which was developed in the styling studio at the company's product-development center in Fort Wayne. A bigger windshield and the increased slope of the hood improve the driver's lines of sight from the cab. Mark Stasell, the product-development vice president overseeing the program, says these styling cues will get a makeover just five years from now, a timetable more typical of cars than of trucks. It's all part of a trend to make everyday work vehicles more visually exciting. The Acterra medium truck introduced in 1999 by Freightliner's Sterling subsidiary has sporty lines, and Freightliner is about to roll out other new medium trucks.

International put its next-generation truck program in high gear in 1997, following a long-term agreement with the United Auto Workers that allowed layoffs and revised work rules at the Springfield plant. Labor costs have historically been high for International. Rivals Ford and General Motors have expensive labor too, but they can realize economies of scale by sharing cab components between their lines of medium trucks and heavy-duty pickups. Freightliner has a largely non-union work force.

The cab is typically the most complex and expensive component that a truckmaker builds. Introducing high-level automation to cab building is expensive, and the relatively low volumes in a truck plant have long made the investment hard to justify. International is betting heavily that by sharing the maximum number of cab stampings, the 4000 series trucks and other new models to come will produce a satisfactory return on its investment. The new cab design will even be used on the company's smaller Class 8 tractors, which pull trailers on short-distance runs and are sometimes referred to as "day cabs" because they don't have onboard sleeping accommodations.

Spot welding on the new cabs is performed by an "intelligent body-assembly system" (IBAS) supplied by Nissan Motor Co.'s machinery division in Zama City, Japan. Nissan has similar equipment at its car-assembly plant in Smyrna, Tenn. The IBAS uses a detachable radio-frequency tag to identify which type of cab it is building as each job flows through the system. Variations can include standard cabs, roomier extended versions, and crew cabs with rear seats that are popular with railroad and utility maintenance crews.

Mechanical grippers in the IBAS system precisely position the steel panels using laser-gauging sensors, and robot arms then tack the panels together with spot welds. The careful positioning of the parts before welding is critical to the accuracy of the cab's final dimensions. As the job moves down the line, more robots attack, applying a total of about 1,500 welds to complete the cab's structure. People armed with weld guns do the work at locations where human dexterity is a cheaper solution than the use of machinery.

International is using an imposing gang of four new presses built by Schuler of Germany--one rated at 1,650 tons and three at 825 tons. They stamp the 13 important parts, such as outer door panels and roofs, that affect the cab's cosmetics. Smaller parts such as internal stiffeners are purchased from suppliers or made at the company's old stamping plant nearby, which has some presses dating back to World War II. Joe Leep, manager of cab fabrication at Springfield, says cabs built with the new equipment meet dimensional tolerances of plus or minus one-thousandth of an inch, the standard used in the most demanding car-body plants. The tolerances in International's old-model cabs are in the range of five- to ten-thousandths of an inch.

Building the cab structure to high standards of precision results in a truck with attributes the driver is likely to notice, such as lower wind noise, doors that shut nicely, and body and interior-trim panels that line up properly where they meet. Precision also makes some assembly steps more efficient. For example, improved control over the dimensions of the steel flange where the windshield is mounted allows International to use an automated system. One robot applies bonding adhesive to the flange, and a second robot equipped with a vacuum gripper carefully places the windshield where it belongs. In the old method, two or three workers horse into position a windshield surrounded with a thick rubber seal, which is needed to compensate for imprecision in the body build. In the new models the seal is unnecessary.

Department 65 at the Springfield assembly plant, where cabs are "trimmed," or fitted out with interior amenities, is the largest operation, occupying five acres of floor space. Watching International's new cab line run alongside the old one, which will gradually be changed over to producing the new product, reveals striking advances. Cabs come down the old line with the doors already attached, and workers add window mechanisms and interior panels. To assemble instrument panels they have to snake wire harnesses through openings in the dashboard, install and connect numerous switches, and hook up heater and air-conditioning ducting. Then they must check to make sure everything works.

It's all different on the new cab-trim line. Next to it sits a rack of automotive-style modular instrument panels, which are delivered fully assembled and tested by an outside component supplier, Alphabet in Warren, Ohio. Several instrument panels are mounted on a carousel where workers attach "driver-control modules" to them, including the steering column and the brake and clutch pedals. In the next step, two workers using a lift-assist device swing these megamodules into the cabs and secure them in place.

The doors aren't in the way during this step because they are fully assembled off-line and bolted on after the interior trimming is done. According to subassembly area manager Kevin Holley, only six people will be needed to install modular instrument panels after production ramps up on the new line, vs. more than 50 assembling them on the old line. The number of parts kept in inventory will fall from 3,000 to 670, and the overall labor hours to trim a cab will be trimmed from 6.1 to 4.83. The new line occupies less than half the floor space required for the old one, Holley adds.

Holley and others stress that line workers were involved from the start in rethinking the assembly sequence. The idea was to make truck building easier for the assemblers. One ergonomic advance that incorporates workers' suggestions can be seen in the area where hefty front and rear axles are "pinned," or bolted onto the long, ladderlike steel truck frames. Traditional practice involves lowering the frame onto a set of axles, which are mounted on pallets. It takes a crew of six people, armed with big hammers and a few crowbars, to "persuade" the frame onto the axle-mounting bolts. Because the workers can't properly see the bolts, some don't get tightened correctly, causing warranty problems. The workstation has also been the site of repetitive-motion injuries. It's not a popular job. Everybody working there is at the bottom of the seniority totem pole.

When engineers and assembly workers brainstormed better ways to perform this job, a new idea emerged: Flip the frame upside down and pin the axles from above instead of from below. In the new line, a pair of specially designed overhead hydraulic grippers takes each frame as it comes down the line and turns it over. Two workers using chain hoists then lower the front and rear axles and bolt them in place. With that done, the 4,000- to 8,000-pound frame gets flipped right-side up.

Challenging the accepted way of doing things led to other changes. Downstream from the axle-pinning workstation on the old line, engines with transmissions mated to them are lowered into the frame and bolted to their mounts. On the new line, the transmission-and-engine assemblies also come with big radiators and the accompanying hoses already attached. According to John McKinney, who runs the assembly plant, hooking up the coolant hoses is easier before the engines are mounted in the frames and results in fewer leaks being detected during final inspection at the end of the line.

Stasell, International's product-development vice president, presided over shrinking the old smorgasbord of powertrain combinations, which numbered 860, to just 34. Until now combinations proliferated needlessly for a number of reasons. Manufacturers found, for example, that by varying the engine-control computer programming and the turbocharger, they could alter diesel engines that are essentially the same to fit market niches that are only about 20 horsepower apart.

When the large variety of available transmissions and gear ratios is factored in, the number of possible powertrain combinations has grown like a field of weeds, driving down the quantity and pushing up the price of each component that is purchased from a particular supplier. This isn't the way things work at a car company. Says consultant Harbour: "In a car plant, 15 powertrain combinations would be at the high end."

A cornerstone of the next-generation vehicle program--and one of its carlike aspects--was stopping this madness at the outset. "The rest of the industry has been getting purchasing volume through acquisitions, and our approach is that we're going to get volume through commonality and modularity," Stasell says. "In the past we had different design teams developing different trucks, and it was hard to get a lot of parts in common." In the first round of the culling process, the number of powertrain combinations was cut to 100. Then the planners got out their pruning shears and further trimmed the list to 34.

Thinning out the complexity was somewhat easier for International because it builds its own medium-duty diesel engines. They come in in-line six-cylinder and V-8 versions. Starting with the introduction of the new medium-truck line, the company will offer each engine in just a few horsepower ratings. The transmission options have been pared down as well. In connection with its commonality efforts, International has cut the number of supplier firms it buys from by 47%, to 140 companies.

Now that International is buying components in bigger volumes, suppliers have become more interested in collaborating on things that affect how slick the vehicle feels to drive. Software engineers at Allison, for example, wrote special shifting algorithms for the automatic transmissions they're selling to International. More than 60% of the new trucks are expected to be sold with automatics in the years ahead, and the proportion is expected to keep growing thereafter. Allison thus has good reason to help International's engineers make them glide through their gears without any herky-jerky action. Confesses Stasell: "The truth is that in the past we couldn't optimize the performance of those hundreds of powertrains because there wasn't enough engineering time for all of them. All we could do was make sure the engines didn't tear up the transmissions and everything met the durability requirements."

In limiting the combinations available on its trucks, however, International is taking a risk. Has it gone from too many to too few? "More than 800 choices certainly wasn't the right number from a manufacturing-efficiency standpoint," says Dick Sweebe, owner of Diamond Cos. in Memphis, which operates 13 International dealerships in four states. "But I don't know if 30-something is the right number either. Every month a fleet manager gets a stack of trucking magazines you couldn't jump over, so he's always got a new idea he wants to try. We've got one competitor who will build in anything you want, no problem."

International is betting that the series 4000's new design features will more than make up for fewer choices. The truckmaker has sharpened its image with a new hood badge that incorporates the logo from a 1920s truck radiator. It's downplaying the corporate parent's Navistar name, which was born during the reorganization of the old International Harvester Co.

More important than image is the effort to produce a vehicle that will please truck drivers. Ergonomists, for example, put a lot of effort into getting the cab layout right. Redesigned steps and grab handles make access easier for drivers, who may climb in and out of their trucks 50 times daily on busy routes.

Other amenities abound. The new trucks' air-conditioning and heating systems have double and triple the airflow of their antecedents. Controls fall naturally to hand, and gauges are easy to read. The attention to interior trim, including a graceful molded "eyebrow" where the top of the dashboard arches over the instrument cluster, brings to mind a German car rather than a workhorse for the state highway department. The new cab contrasts sharply with the company's more spartan current model, and with Ford and GM offerings that have an agricultural ambiance. Freightliner, with its access to parent DaimlerChrysler's design and ergonomics expertise, is International's closest rival at creating a pleasant cab environment.

All of this matters, dealer Sweebe says. "The pressure to hire and keep good drivers is as great or greater than in the long-haul trucking business. Owners pay attention when a driver says, 'My truck is beating me to death.' And they don't want injuries or workers' compensation claims." At the International test track in Fort Wayne, test drives of a new 4000 truck, as well as the current model and competing makes, suggest that drivers will welcome the new product. The 4000's turning radius is tighter and, thanks to improved noise isolation in the cab, there's one-third less racket than before.

International avoided the quick and dirty way to quiet down machinery, which is to add noise-deadening insulation. That increases weight and cost. The better and subtler solution is to assign a team of NVH (noise, vibration, and harshness) engineers to squelch the irritants at their sources. Every part of a vehicle has a natural resonant frequency at which it will vibrate. Using computer simulations and physical prototypes, the NVH people can identify cab-mounting locations on the truck's frame that don't resonate and propagate vibrations. Engineering director V.K. Sharma says these studies led his group to attach the truck's vertical mufflers to the frame instead of the cab. This approach added nothing to costs.

Another feature International added without increasing costs is microprocessor-controlled multiplexing of the cab's electrical system. That reduces the number of connectors, which is where circuits usually fail, and requires 40% less wiring. Multiplexing works by sending multiple electrical signals down the same pair of wires, and lets a repair technician detect electrical faults by plugging in a laptop computer instead of poking around with a test instrument and looking for a short circuit.

Multiplexing is expected to be particularly helpful in fire trucks and other emergency equipment that uses a lot of electrical accessories. The builders of such bodies traditionally added extra switch panels to the truck cab. Now, by using a laptop, they can install as many as 24 accessories and assign their function to built-in switches. By dragging and dropping icons on the computer screen, moreover, the body builder can reassign a switch to a new function without any rewiring when different equipment is installed. If the vehicle has a crane and needs outriggers for stability, for example, multiplexing makes it easy for builders to add a function that prevents the vehicle from being driven while the outriggers are lowered.

Sharma also likes to show off the way routine under-hood maintenance items such as oil and other fluid-level checks are color-coded and grouped within easy reach. That makes it as simple as possible for drivers or mechanics to do daily inspections that can forestall breakdowns.

Perhaps that new hood ornament will help International's people muster the enthusiasm needed to launch the next-generation truck lineup when the business is on a downgrade. Partly because of a big charge-off, Navistar lost $1.77 a share in the fourth quarter of 2000, compared with earnings of $2.04 a year ago. The industry is forecasting that things won't get better at least until the second half of this year. "Certainly an up market would be great because we could really push for a premium price," observes CEO Horne. "But in a low market, where people are picky about what they buy, it's also going to be an advantage to have the latest thing that delivers good value."

There may be a silver lining in this cloud. Sales of big, trailer-pulling Class 8 tractors were going gangbusters before the slowdown, partly because of the booming economy and partly because of the adoption by all sorts of industries of just-in-time manufacturing methods that stress lean inventories of parts and materials. In effect, this turns trucks into rolling warehouses. Some forecasters think the next step will be a move to "exactly in time" inventory, which during the next upswing of the business cycle will spark a boom in demand for medium trucks that can make even smaller, more frequent deliveries to factories. Says publisher Stark: "The market will determine how soon Navistar can get a return on its big investment." If exactly in time catches on, the payoff could be bigger and come sooner.

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