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AM General Modifies Humvee for Global Market

Nov. 6, 2012 - 07:25PM   |  
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With its dark windows and familiar silhouette, AM General’s newest addition to the Humvee lineup may look typical, but it masks a secret: It’s the first right-hand-drive version the company has built since production began in 1983.

After nearly 30 years and 300,000 Humvees delivered, AM General is eyeing global military spending and targeting international customers who drive on the left side of the road. It’s one example of a U.S. company recognizing the shift in growth opportunities and investing to target new markets. The U.S. defense budget is expected to decline, and spending on land systems will likely face a disproportionate cut.

For the company, with headquarters in South Bend, Ind., the international game isn’t new. Roughly a sixth of its total Humvee sales have been outside the U.S.

Despite the past numbers, Rick Alpaugh, AM General’s vice president of international military sales, saw right-hand drive as an immediate chance for international growth when he joined the company two years ago.

“One of the challenges they gave me when I came to the company was how do you take a thriving, well-positioned company and take it to the next level?” he said. “And I looked around, [and] one of the things I realized we had missed was the right-hand-drive market.”

Roughly 18 months and $10 million in investment later, the right-hand-drive Humvee was born. The new vehicle has been in testing for the past six months, and while no sales have been made, the company said it is ready for the market.

The investment was spent on engineering a fully integrated drive system in the vehicle, as opposed to a conversion, Alpaugh said. This allows for the vast majority of the parts to be common between the two driving positions.

The new vehicle should give the company access to 70 new countries, with an emphasis on Southeast Asia, where a clear value proposition needs to be demonstrated, Alpaugh said.

“You have tons of countries that don’t have robust defense budgets, so while they appreciate the capabilities of the Humvee, they can’t afford it; instead, they use commercial vehicles,” he said. “None of these guys are using horse and buggies now; they all have vehicles that they’ve been doing missions with, so it’s about penetrating these markets.”

Limited Prospects?

But the fact that few of the countries that drive on the other side of the road are in the market for imported vehicles means this move is likely about India or Pakistan, said James Hasik of Hasik Analytics.

“There’s a short list of countries with what I’d call modern or just large militaries that drive on the left. The U.K., Ireland, Japan, India, Pakistan, Australia, New Zealand, Thailand, Malaysia, Singapore and South Africa are about all,” Hasik said.

“The U.K., Australia and Japan have very competent local military truck businesses, and the British Army in particular is pretty saturated with new trucks,” he said. “No one is launching a new RHD [right-hand-drive] vehicle for the Irish or Kiwi markets, clearly. I suspect that this is about India or Pakistan, which require lots of vehicles at modest prices.”

And while companies have been pushing international markets, this move also demonstrates limited pro-spects for AM General domestically, Hasik said.

“I think that this development is endemic to AM General, which has one shot at survival in the U.S. [in the Pentagon’s Joint Light Tactical Vehicle program], but whose investors could find another use for the company’s [intellectual property],” Hasik said. “This thing sounds to me like a modest investment for a long-shot but lucrative possibility.”

An October report from the market analysis firm Frost & Sullivan highlighted the shifting market for land systems manufacturers away from major U.S. and European markets.

“New vehicle procurement numbers in the future will decline in traditional western markets, though procurement numbers will increase in emerging markets in [Asia-Pacific] and the Middle East,” the report said. “For suppliers, this means less opportunity to benefit from economies of scale. Suppliers can no longer rely on one country and will be forced to focus on multiple markets to remain profitable.”

Guy Ben-Ari, deputy director and senior fellow with the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies, Washington, said moves like this, in which a company modifies a product to meet international market needs, are important.

“It sends a signal that this is a company that focuses on the customer, that will be responsive to the customer, that is aware ahead of time of not just the customer but the overall culture and environment in which the customer operates, and is willing to not just be responsive in small ways, but make significant commitments and show its willingness to respond to customer needs,” he said.

For AM General, reaching these customers and markets means more than just the sale price of vehicles. The company services vehicles and supplies parts and maintenance, as well as training. A 300-acre course is maintained to help operators learn how to use the vehicles, and manuals and instruction are offered in “just about any language,” Alpaugh said.

“What separates AM General from some of our competitors is our willingness and ability to give a total package approach,” he said.

For a vehicle such as the Humvee, which is on its sixth generation, its iconic status stands out, he said.

“When you look at a product that really signifies the U.S. military, nothing symbolizes the U.S. Army like the Humvee does.”

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