Driving forces: combat vehicle sector could be headed for turbulent times.

• Author: Gropman, Alan L.
• Position: Industry Study

The $38 billion U.S. military market for land combat systems--which includes tactical trucks and tracked combat vehicles--continues to enjoy the boom that started five years ago.

The industry has thrived despite erratic government funding and regulatory vagaries. But it must now prepare for a possible downturn during the next several years, and it must also brace for further consolidation and tougher global competition, says a study written by a group of military officers at the Industrial College of the Armed Forces.

The Army estimates it manages more than 200,000 tactical-wheeled vehicles and an additional 85,000 trailers. The Marine Corps controls approximately 25,000 tactical vehicles and trailers. While it is impossible to truly capture the entire cost of this market, the Army has estimated its assets alone amount to more than $36 billion in capital costs.

The land combat systems industry can expect much of its business in the coining years to come from the so-called "reset" market. Reset refers to upgrades, repairs and overhauls that vehicles require when they return from war. Extended deployments in Iraq and Afghanistan have left the services with a tactical-wheeled vehicles fleet that is aging beyond its useful life. More than 50 percent of the Army's fleet is approaching, or has exceeded, its useful life. Further, the capabilities of the current fleet will not meet the future needs of the services.

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Reset efforts will go on for several years. If history is any guide, it took the Army almost two years to reset its forces following Operation Desert Storm in 1991, a conflict that lasted only six months.

A major driver for demand will be the Army's modernization and modularity plan. The U.S. Army, National Guard, and reserves are undergoing a structural change from 58 brigades to 72. In addition, the Army is increasing the number of vehicles in each unit. The Army has also been given authorization to increase its active duo, end-strength by 65,000 and the reserve by 9,000 by fiscal year 2013. The Army expects that it will require the addition of 40,000 more vehicles to its current fleet to meet the requirements of this larger and more modular force. The Marines also were authorized an increase of 22,000, and it too will need additional vehicles and equipment.

Modernization is also driving more technologically sophisticated tactical wheeled vehicles. The Joint Light Tactical Vehicle (JLTV) program requires high...