Spring 2012 Industry Study Final Report Land Combat Systems Industry The Industrial College of the Armed Forces National Defense University Fort McNair, Washington, D.C. 20319-5062 LAND COMBAT SYSTEMS 2012 ABSTRACT: The United States is the leading producer and consumer of advanced Land Combat Systems. The industry has two major segments, tactical-wheeled vehicles (TWV) and combat vehicles (CV). The TWV market is comparable to the commercial truck market, while the CV market is completely government reliant. A decade of war-driven funding has produced healthy, recapitalized vehicle fleets. This growth, followed by major defense budget cuts, left an extreme of excess capacity. As industry scales down from production highs, normal market forces will resolve the TWV segment. For CVs, the Government must intervene to retain critical skills, flexible capacity, and continued innovation. Mr. Jeffrey Bradel, Dept of the Navy LtCol Chad Burke, U.S. Marine Corps Lt Col Doug DeMaio, U.S. Air Force Lt Col Jean Eisenhut, U.S. Air Force Lt Col Troy Gerock, Air National Guard LTC James Parks, U.S. Army COL Scott Petersen, U.S. Army Mr. Peter Russelburg, GSA Col Chihlung Sheng, Taiwan Army COL Mike Sloane, U.S. Army Col Abdelali Tellal, Morocco Army Col Jeff Ullmann, U.S. Air Force LtCol Brian Wolford, U.S. Marine Corps COL Russ Wygal, U.S. Army Dr. Richard Shipe, Faculty Mr. Anthony Romano, Faculty Dr. Tim Russo, Faculty PLACES VISITED Domestic: Aberdeen Test Center (Aberdeen Proving Grounds, MD) Allison Transmissions (Indianapolis, IN) AM General (Mishawaka, IN) Anniston Army Depot (Anniston, AL) BAE Systems (York, PA) General Dynamics Land Systems Headquarters (Sterling Heights, MI) General Dynamics Land Systems Anniston Operations (Anniston, AL) Joint Systems Manufacturing Center – Lima Tank Plant (Lima, OH) Oshkosh Corporation (Oshkosh, WI) U.S. Army Program Executive Officer, Combat Support-Combat Service Support (Warren, MI) U.S. Army Program Executive Officer, Ground Combat Systems (Warren, MI) USMC Amphibious Combat Vehicle/Marine Personnel Carrier Program Office (Woodbridge, VA) USMC Joint Light Tactical Vehicle Program Office (Quantico, VA) USMC Mine Resistant Ambush Protected (MRAP) Program Office (Quantico, VA) International: MAN Truck & Bus (Munich, Germany) Rheinmetall-MAN Military Vehicles Headquarters (Munich, Germany) Renk Transmissions (Augsburg, Germany) Krauss-Maffei Wegmann (Munich, Germany) EADS Cassidian (Unterschleissheim, Germany) Nexter Systems (Versailles, France) Renault Trucks Defense (Versailles, France) Panhard General Defense (Marolles-en-Hurepoix, France) General Directorate for Armament, French Ministry of Defense (Paris, France) 1 INTRODUCTION The Land Combat Systems (LCS) industry is a telling example of the world the United States (U.S.) military finds itself in today. After a decade of force buildup and momentous spending, including a large portion allocated to ground forces and LCS programs, the military faces significant budget reductions. The nation completed force withdrawal in Iraq and is completing major military ground forces action in Afghanistan, marking the beginning of a major force drawdown. The U.S. national debt has driven Congress and the President to usher in an era of austerity when the defense budget will shrink by $487B over the next ten years and by an additional $600B over ten years if sequestration takes effect on January 2, 2013.1 On January 5, 2012, in response to the changing fiscal and security environment, the President released a new strategic direction that shifts U.S. focus toward the Pacific.2 This announcement was followed by the fiscal year (FY) 2013 President’s budget, reflecting the resources needed to execute the new strategy. Today, military ground vehicle inventories and equipment readiness are at healthy levels, shifting the focus to sustainment planning. Robust inventory and readiness levels offer the Department of Defense (DoD) an opportunity to reduce budgets originally allocated to land combat systems without sacrificing warfighting capabilities. Based on extensive discussions with government and industry officials, the 2012 LCS industry study seminar has: 1) assessed the current LCS industry’s ability to adapt to its monopsonist buyer’s changing requirements, policies, and budgets; 2) observed how the Government uses guidance, policy, and law to shape this behavior; and 3) identified opportunities to adjust these approaches to better meet the future needs of the ground forces. Today’s challenge is balancing how to scale back capacity, maintain a competitive and innovative market, assure a resilient industrial base, and support the ground forces’ mission, while continuing to outfit ground forces with world class land combat systems. DEFINE THE INDUSTRY The LCS industry is a collection of firms that supply a broad spectrum of vehicles and systems, including tanks, infantry fighting vehicles, armored carriers, artillery and missile systems, protected vehicles, tactical trucks and command and control vehicles. For the purposes of this analysis, the seminar aggregated the vehicles on this list into the Combat Vehicle (CV) and the Tactical Wheeled Vehicle (TWV) markets (see Appendix 1). The size of the industry varies considerably depending on the national security environment. At the beginning of the last decade, industry revenue was about $10 billion annually and grew steadily during the war years, peaking in 2008-2010 with annual sales in the range of $30-45 billion. Revenues have declined sharply since 2010 and are presently at about $15 billion annually and falling. TWVs are trucks specifically designed for military purposes. Compared to commercial trucks, military trucks have greater off-road capabilities, are often armored for crew protection, and may be equipped with weapons. However, their primary purpose is combat support and combat service support, including transporting supplies and troop movement in lower threat areas. TWVs include the High Mobility Multipurpose Wheeled Vehicle (HMMWV), the Family of Medium Tactical Vehicles (FMTV), the Medium Tactical Vehicle Replacement (MTVR), and heavy trucks such as the Heavy Expanded Mobility Tactical Truck (HEMTT), Palletized Load System (PLS), Heavy Equipment Transporter System (HETS), and the Logistical Vehicle System Replacement (LVSR). CVs are military unique, built specifically for defense with little or no commercial or civil applications. Heavy tracked or wheeled CVs have extensive armor protection, large 2 weapon systems, and are often used in support roles by both the Army and Marine Corps. The current CV fleet includes the M88 Armored Recovery Vehicle, the M992 Field Artillery Ammunition Supply Vehicle (FAASV), the M113 Armored Personnel Carrier (APC), the Light Armored Vehicle (LAV), the Multiple Launch Rocket System (MLRS), the M9 Armored Combat Earthmover (ACE), the M1 Abrams tank, the M109 self-propelled artillery, the Amphibious Assault Vehicle (AAV), Bradley M2 Infantry and Cavalry Fighting vehicles, and the Stryker family of wheeled combat vehicles. The Protected Vehicle (PV) class of platforms emerged in response to the threat posed by Improvised Explosive Devices (IED) to U.S. and coalition troops in Iraq. These vehicles protect personnel engaged in counter-insurgency warfare, primarily for use in an urban environment. The primary example of a PV is the Mine Resistant Ambush Protected (MRAP) vehicle, which combines the armored survivability technology found in CVs with the commercial truck features found in TWVs. The MRAP, with its excellent survivability record, has influenced the requirements development process by emphasizing protection as a key performance parameter for all future TWV and CV platforms. While increased protection is always desirable, the added weight and underbody shaping are burdens that negatively affect mobility performance. Trading protection, performance, and payload with weight and cost remains very challenging for vehicle design engineers as they attempt to address platform threshold and objective requirements. Seven different manufacturers, most representing the commercial trucking industry, produced approximately 27,000 MRAPs between 2007 and 2009.3 For the purpose of this analysis and brevity, the LCS Seminar did not address PVs separately, but instead determined that it functions in a manner consistent with the TWV market. Market Structure Within the TWV and CV markets, the Government is a monopsony buyer and wields considerable buyer power during the competitive phases of an acquisition program. As a sovereign, the Government exerts extensive influence on defense firms to develop needed technology, to exact only reasonable profits, and to protect the intellectual property within these systems. Buyer power is prolonged if the Government owns the technical data package (TDP). In addition, the Government has ultimate control over export sales and technology transfer, thereby dictating to suppliers the size and scope of the market in which they may operate. The Army and Marine Corps each have unique ground vehicle requirements, but collaborate when feasible. Foreign governments are customers as well. Despite only being one of many, and with no nation making procurements on the same scale as the U.S., foreign governments wield considerable buying power due to their freedom to shop among multiple producer nations. The TWV and CV markets, like most classic capitalist markets, are driven by consumer spending and profit. The companies involved respond based on when