##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

|                            |  |                                                                                                                                                         
|--------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|[X]                         |  | Quarterly Report Pursuant to Section 13 or 15(d) of the
	Securities Exchange Act
	of 1934 for the quarterly period ended September 30,
	1999.           
|                           
|Or                         
|                           
|[     ]                     |  | Transition Report Pursuant to Section 13 or 15(d) of the
	Securities Exchange Act
	of 1934 for the transition period from      
	      to      
	      .
|                           
|Commission File No. 1-12394

DETROIT DIESEL CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|                                                              
|                                                              
|                                                              
|                                                              
|Delaware                                                       |  | 38-2772023                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

13400 Outer Drive West, Detroit, Michigan 48239-4001

(Address of principal executive offices, including
 zip code)


313-592-5000

(Registrants telephone number, including
area code)


Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
 Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.  Yes  [X]  No 
[   ]

Indicate the number of shares
outstanding of each of the issuers classes of common stock
as of the latest practicable date.

|                             |  |                                
|---------------------------- |  | -------------------------------
|                            
|                            
|                            
|                            
|Common Stock $0.01 Par Value |  | 24,706,191 Shares              
|Class                        |  | Outstanding at October 22, 1999

This report contains 17 pages. The exhibit index is on page 16.



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TABLE OF CONTENTS



|                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------- |  |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                   
|PART I -- FINANCIAL INFORMATION                     
|CONSOLIDATED STATEMENTS OF OPERATIONS               
|CONSOLIDATED BALANCE SHEETS                         
|CONSOLIDATED STATEMENTS OF CASH FLOWS               
|NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|PART II -- OTHER INFORMATION                        
|SIGNATURE                                           
|EXHIBIT INDEX                                       



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TABLE OF CONTENTS


|                               |                                                                                                 |                                                                                                        |    |    |   | 
|------------------------------ | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | -- | -- | - | 
|                               |                                                                                                 | Page No.                                                                                              
|                               |                                                                                                 |                                                                                                       
|PART I  FINANCIAL INFORMATION |                                                                                                 |                                                                                                        |    |   
|                              
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|                               | Item 1. Financial Statements                                                                    |                                                                                                        |    |    |  
|                              
|                               |                                                                                                 | Consolidated Statements of Operations for the Three and Nine
	months ended September 30, 1999 and 1998 |    |    | 3 | 
|                              
|                               |                                                                                                 | Consolidated Balance Sheets at September 30, 1999 and
	December 31, 1998                               |    |    | 4 | 
|                              
|                               |                                                                                                 | Consolidated Statements of Cash Flows for the Nine months ended
	September 30, 1999 and 1998           |    |    | 5 | 
|                              
|                               |                                                                                                 | Notes to Unaudited Consolidated Financial Statements                                                   |    |    | 6 | 
|                              
|                              
|                              
|                              
|                              
|                               | Item 2. Managements Discussion and Analysis of
	 Financial Condition and Results of Operations |                                                                                                        |    | 8  |  
|                              
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|PART II  OTHER INFORMATION    |                                                                                                 |                                                                                                        |    |   
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|                              
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|                               | Item 6. Exhibits and Reports on Form 8-K                                                        |                                                                                                        |    | 14 |  
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|SIGNATURE                      |                                                                                                 |                                                                                                        | 15 |   
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|                              
|EXHIBIT INDEX                  |                                                                                                 |                                                                                                        | 16 |   

2



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##### Table of Contents








PART I  FINANCIAL INFORMATION


Item 1. Financial Statements

DETROIT DIESEL CORPORATION






CONSOLIDATED STATEMENTS OF OPERATIONS


(In millions, except per share amounts)


(Unaudited)


|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |       | 
|------------------------------------------------ | ------------ | ------------------ | ----- | ----------------- |  | ---- | ----- | ----- |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                                 |              |                    |       |                  
|                                                 |              | Three months ended |       | Nine months ended
|                                                 |              | September 30,      |       | September 30,    
|                                                 |              |                    |       |                  
|                                                 |              | 1999               |       | 1998              |  | 1999 |       | 1998 
|                                                 |              |                    |       |                   |  |      |       |      
|Net revenues                                     |              | $                  | 588.2 |                   |  | $    | 543.0 |       |  | $ | 1,764.9 |       |  | $ | 1,688.1 |      
|Cost of sales                                    |              |                    | 448.2 |                   |  |      | 415.5 |       |  |   | 1,345.6 |       |  |   | 1,295.2 |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|                                                 | Gross profit |                    |       | 140.0             |  |      |       | 127.5 |  |   |         | 419.3 |  |   |         | 392.9 | 
|                                                
|                                                
|                                                
|                                                
|Expenses:                                        |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|Selling and administrative                       |              |                    | 91.8  |                   |  |      | 86.8  |       |  |   | 274.2   |       |  |   | 266.0   |      
|Research and development                         |              |                    | 27.7  |                   |  |      | 22.7  |       |  |   | 80.0    |       |  |   | 70.9    |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|                                                 | Total        |                    |       | 119.5             |  |      |       | 109.5 |  |   |         | 354.2 |  |   |         | 336.9 | 
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|Income before interest, taxes and special charge |              |                    | 20.5  |                   |  |      | 18.0  |       |  |   | 65.1    |       |  |   | 56.0    |      
|Interest                                         |              |                    | 1.6   |                   |  |      | 2.8   |       |  |   | 6.0     |       |  |   | 8.8     |      
|Special charge                                   |              |                    |      |                   |  |      | 12.5  |       |  |   |        |       |  |   | 12.5    |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|Income before income taxes                       |              |                    | 18.9  |                   |  |      | 2.7   |       |  |   | 59.1    |       |  |   | 34.7    |      
|Provision for income taxes                       |              |                    | 7.0   |                   |  |      | 5.2   |       |  |   | 21.9    |       |  |   | 17.0    |      
|Minority interests                               |              |                    |      |                   |  |      | (0.1  | )     |  |   |        |       |  |   |        |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|Net income (loss)                                |              | $                  | 11.9  |                   |  | $    | (2.4  | )     |  | $ | 37.2    |       |  | $ | 17.7    |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|Basic net income (loss) per share                |              | $                  | .48   |                   |  | $    | (.10  | )     |  | $ | 1.51    |       |  | $ | .72     |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      
|Diluted net income (loss) per share              |              | $                  | .48   |                   |  | $    | (.10  | )     |  | $ | 1.50    |       |  | $ | .71     |      
|                                                 |              |                    |       |                   |  |      |       |       |  |   |         |       |  |   |         |      

See accompanying Notes to Unaudited Consolidated Financial
Statements.

3



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##### Table of Contents



DETROIT DIESEL CORPORATION






CONSOLIDATED BALANCE SHEETS


(In millions, except per share amounts)


|                                     |                                                                                                                    |                                            |         |              |         |   |         |        |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                     |                                                                                                                    | September 30,                              |         | December 31,
|                                     |                                                                                                                    | 1999                                       |         | 1998        
|                                     |                                                                                                                    |                                            |         |             
|                                     |                                                                                                                    | (Unaudited)                                |         |             
|                                    
|                                    
|                                    
|                                    
|ASSETS                               |                                                                                                                    |                                            |         |              |         |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Current Assets:                                                                                                    |                                            |         |              |         |   |         |        |        
|                                     | Cash                                                                                                               |                                            | $       | 2.6          |         |   | $       | 3.2    |        
|                                     | Accounts and notes receivable, net                                                                                 |                                            |         | 343.1        |         |   |         | 313.3  |        
|                                     | Inventories                                                                                                        |                                            |         | 350.7        |         |   |         | 344.2  |        
|                                     | Prepaid expenses, deferred charges and other current assets                                                        |                                            |         | 12.7         |         |   |         | 14.9   |        
|                                     | Deferred tax assets                                                                                                |                                            |         | 70.8         |         |   |         | 61.8   |        
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     | Total Current Assets                                                                                               |                                            |         | 779.9        |         |   |         | 737.4  |        
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     | Property, Plant and Equipment:                                                                                     |                                            |         |              |         |   |         |        |        
|                                     | Land and buildings                                                                                                 |                                            |         | 95.7         |         |   |         | 85.2   |        
|                                     | Machinery, equipment and tooling                                                                                   |                                            |         | 433.9        |         |   |         | 415.8  |        
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     |                                                                                                                    | Total Property, Plant and Equipment        |         |              | 529.6   |   |         |        | 501.0   | 
|                                     | Less: accumulated depreciation                                                                                     |                                            |         | (219.3       | )       |   |         | (191.6 | )      
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     |                                                                                                                    | Net Property, Plant and Equipment          |         |              | 310.3   |   |         |        | 309.4   | 
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     | Deferred Tax Assets                                                                                                |                                            |         | 12.9         |         |   |         | 15.1   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Intangible Assets, net                                                                                             |                                            |         | 133.9        |         |   |         | 144.7  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other Assets                                                                                                       |                                            |         | 47.0         |         |   |         | 34.1   |        
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|Total Assets                         |                                                                                                                    | $                                          | 1,284.0 |              |         | $ | 1,240.7 |       
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                    |                                            |         |              |         |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Current Liabilities:                                                                                               |                                            |         |              |         |   |         |        |        
|                                     | Notes payable                                                                                                      |                                            | $       | 38.0         |         |   | $       | 38.3   |        
|                                     | Accounts payable                                                                                                   |                                            |         | 296.0        |         |   |         | 278.2  |        
|                                     | Accrued expenses                                                                                                   |                                            |         | 254.8        |         |   |         | 210.3  |        
|                                     | Current portion of long-term debt and capital leases                                                               |                                            |         | 3.8          |         |   |         | 4.1    |        
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     |                                                                                                                    | Total Current Liabilities                  |         |              | 592.6   |   |         |        | 530.9   | 
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     | Long-Term Debt and Capital Leases                                                                                  |                                            |         | 39.3         |         |   |         | 62.6   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other Liabilities                                                                                                  |                                            |         | 223.7        |         |   |         | 240.5  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Tax Liabilities                                                                                           |                                            |         | 26.3         |         |   |         | 28.9   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Income                                                                                                    |                                            |         | 5.1          |         |   |         | 5.5    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Commitments and Contingencies (Note 5)                                                                             |                                            |         |              |         |   |         |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Stockholders Equity:                                                                                              |                                            |         |              |         |   |         |        |        
|                                     | Preferred Stock, par value $.01 per share: authorized 10 
	million shares; no shares issued                        |                                            |         |             |         |   |         |       |        
|                                     | Common Stock, par value $.01 per share: authorized 40 
	million shares; 24.7 million shares issued and outstanding |                                            |         | .2           |         |   |         | .2     |        
|                                     | Additional paid-in capital                                                                                         |                                            |         | 224.3        |         |   |         | 224.2  |        
|                                     | Retained earnings                                                                                                  |                                            |         | 194.7        |         |   |         | 166.8  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated Other Comprehensive Income:                                                                            |                                            |         |              |         |   |         |        |        
|                                     | Additional minimum pension adjustment                                                                              |                                            |         | (9.7         | )       |   |         | (9.7   | )      
|                                     | Currency translation adjustment                                                                                    |                                            |         | (12.5        | )       |   |         | (9.2   | )      
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     |                                                                                                                    | Total Stockholders Equity                 |         |              | 397.0   |   |         |        | 372.3   | 
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       
|                                     |                                                                                                                    | Total Liabilities and Stockholders Equity |         | $            | 1,284.0 |   |         | $      | 1,240.7 | 
|                                     |                                                                                                                    |                                            |         |              |         |   |         |       

See accompanying Notes to Unaudited Consolidated Financial
Statements.

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DETROIT DIESEL CORPORATION






CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |       |      |       |  
|---------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------------------------- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | -
|                                                                                   |                                                     |                                                              
|                                                                                   |                                                     | Nine months ended                                            
|                                                                                   |                                                     | September 30,                                                
|                                                                                   |                                                     |                                                              
|                                                                                   |                                                     | 1999                                                          |                                                             | 1998 
|                                                                                   |                                                     |                                                               |                                                             |      
|CASH FLOWS FROM OPERATING ACTIVITIES:                                              |                                                     |                                                               |                                                             |       |      |       |       |      
|Net income                                                                         |                                                     | $                                                             | 37.2                                                        |       |      | $     | 17.7  |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Adjustments to reconcile net income to net cash provided by
	operating activities: |                                                     |                                                               |                                                             |       |      |       |       |      
|                                                                                   |                                                     | Depreciation and amortization                                 |                                                             |       | 38.8 |       |       |       | 34.8 |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                     | Changes in assets and liabilities which provided (used) cash: |                                                             |       |      |       |       |       |      |      
|                                                                                   |                                                     |                                                               | Accounts and notes receivable                               |       |      | (37.2 | )     |       |      | (4.3  | )
|                                                                                   |                                                     |                                                               | Inventories                                                 |       |      | (12.4 | )     |       |      | (35.5 | )
|                                                                                   |                                                     |                                                               | Prepaid expenses, deferred charges and other current assets |       |      | 1.2   |       |       |      | (3.0  | )
|                                                                                   |                                                     |                                                               | Deferred taxes                                              |       |      | (7.5  | )     |       |      | (1.2  | )
|                                                                                   |                                                     |                                                               | Accounts payable                                            |       |      | 25.2  |       |       |      | (5.7  | )
|                                                                                   |                                                     |                                                               | Accrued expenses and other liabilities                      |       |      | 28.6  |       |       |      | 62.2  |  
|                                                                                   |                                                     |                                                               | Intangible and other assets                                 |       |      | (4.2  | )     |       |      | (10.9 | )
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|Net Cash Provided By Operating Activities                                          |                                                     |                                                               | 69.7                                                        |       |      |       | 54.1  |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                              |                                                     |                                                               |                                                             |       |      |       |       |      
|                                                                                   | Acquisition of property, plant and equipment        |                                                               |                                                             | (44.9 | )    |       |       | (30.9 | )   
|                                                                                   | Proceeds from sale of property, plant and equipment |                                                               |                                                             | 2.1   |      |       |       | 1.9   |     
|                                                                                   | Acquisition of subsidiaries, net of dispositions    |                                                               |                                                             | (9.3  | )    |       |       | (13.0 | )   
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|Net Cash Used In Investing Activities                                              |                                                     |                                                               | (52.1                                                       | )     |      |       | (42.0 | )    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                              |                                                     |                                                               |                                                             |       |      |       |       |      
|                                                                                   | Net proceeds from (payments on) notes payable       |                                                               |                                                             | 2.5   |      |       |       | (8.1  | )   
|                                                                                   | Net payments on other long-term borrowings          |                                                               |                                                             | (15.3 | )    |       |       | (5.2  | )   
|                                                                                   | Payment of dividends                                |                                                               |                                                             | (6.2  | )    |       |       |      |     
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|Net Cash Used In Financing Activities                                              |                                                     |                                                               | (19.0                                                       | )     |      |       | (13.3 | )    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Effect of Exchange Rate Changes on Cash                                            |                                                     |                                                               | 0.8                                                         |       |      |       |      |      
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|Net Decrease In Cash                                                               |                                                     |                                                               | (0.6                                                        | )     |      |       | (1.2  | )    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cash at the Beginning of the Period                                                |                                                     |                                                               | 3.2                                                         |       |      |       | 3.2   |      
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|Cash at the End of the Period                                                      |                                                     | $                                                             | 2.6                                                         |       |      | $     | 2.0   |      
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                 |                                                     |                                                               |                                                             |       |      |       |       |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash paid during the period for:                    |                                                               |                                                             |       |      |       |       |       |     
|                                                                                   |                                                     | Interest                                                      |                                                             | $     | 5.4  |       |       | $     | 7.9  |      
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      
|                                                                                   |                                                     | Income taxes                                                  |                                                             | $     | 21.6 |       |       | $     | 14.9 |      
|                                                                                   |                                                     |                                                               |                                                             |       |      |       |       |      

See accompanying Notes to Unaudited Consolidated Financial
Statements.

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##### Table of Contents



DETROIT DIESEL CORPORATION






NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Note 1  Financial Statements.

The accompanying unaudited consolidated financial statements have
 been prepared by management and, in the opinion of management,
contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position
of Detroit Diesel Corporation and its majority-owned subsidiaries
 (Detroit Diesel or the Company) as of
September 30, 1999 and December 31, 1998 and the
results of its operations for the three and nine-month periods
ended September 30, 1999 and 1998 and cash flows for the
nine-month periods ended September 30, 1999 and 1998.

The unaudited consolidated financial statements should be read in
 conjunction with the consolidated financial statements included
in the Companys 1998 Annual Report to Stockholders. The
results of operations for the nine-month period ended
September 30, 1999 are not necessarily indicative of the
operating results for the full year.

Note 2  Inventories.

At September 30, 1999 and December 31, 1998,
inventories (principally using the first-in, first-out method)
consist of the following:

|               |  |               |       |              |  |   |       | 
|-------------- |  | ------------- | ----- | ------------ |  | - | ----- | 
|               |  | September 30, |       | December 31,
|               |  | 1999          |       | 1998        
|               |  |               |       |             
|(In millions)  |  | (Unaudited)   |       |             
|              
|              
|              
|              
|Productive     |  | $             | 182.5 |              |  | $ | 187.4 | 
|              
|              
|              
|              
|Parts          |  |               | 160.8 |              |  |   | 150.5 | 
|              
|              
|              
|              
|Non-productive |  |               | 7.4   |              |  |   | 6.3   | 
|               |  |               |       |              |  |   |       | 
|Total          |  | $             | 350.7 |              |  | $ | 344.2 | 
|               |  |               |       |              |  |   |       | 

The components of productive inventory are:

|                 |  |  |     |  |  |  |     | 
|---------------- |  |  | --- |  |  |  | --- | 
|                
|                
|                
|                
|Raw materials    |  |  | 57% |  |  |  | 58% | 
|                
|                
|                
|                
|Work in process  |  |  | 22% |  |  |  | 23% | 
|                
|                
|                
|                
|Finished product |  |  | 21% |  |  |  | 19% | 

Note 3  Intangible Assets.

Intangible assets include goodwill of $75.7 million and
$82.5 million at September 30, 1999 and
December 31, 1998, respectively. Accumulated amortization of
 intangible assets as of September 30, 1999 and
December 31, 1998 was $32.3 million and
$26.4 million, respectively.

Note 4  Net Income (Loss) Per Share.

Basic net income (loss) per share represents net income
(loss) available to common stockholders divided by the
weighted average number of common shares outstanding during the
period. For the three and nine-month periods ended
September 30, 1999, the weighted average number of shares
outstanding were 24,706,200 and 24,704,900, respectively. The
weighted average number of shares outstanding were 24,702,200 and
 24,702,000 for the three and nine months ended
September 30, 1998, respectively.

Diluted net income per share represents net income available to
common stockholders divided by the weighted average number of
common shares outstanding during the period plus

6



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##### Table of Contents



the weighted average dilutive effect of the Companys
incentive stock options outstanding during the period calculated
using the treasury stock method. The dilutive effect of the
Companys incentive stock options for the three and nine
months ended September 30, 1999 were 84,600 and 96,300
shares, respectively. The dilutive effect of the Companys
incentive stock options for the nine months ended
September 30, 1998 was 62,000.

Note 5  Commitments and Contingencies.

The Company is contingently liable for letters of credit and
guarantees to banks aggregating $31.7 million at
September 30, 1999.

Note 6  Comprehensive Income.

The reconciliation of net income (loss) to comprehensive
income, is as follows:

|                                |  |               |      |               |  |      |      |      |  |   |      |   |  |   |      | 
|------------------------------- |  | ------------- | ---- | ------------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | 
|                                |  |               |      |              
|                                |  | Three months  |      | Nine months  
|                                |  | ended         |      | ended        
|                                |  | September 30, |      | September 30,
|                                |  | 1999          |      | 1999         
|                                |  |               |      |              
|                                |  | 1999          |      | 1998          |  | 1999 |      | 1998
|(In millions)                   |  |               |      |               |  |      |      |     
|Net income (loss)               |  | $             | 11.9 |               |  | $    | (2.4 | )    |  | $ | 37.2 |   |  | $ | 17.7 | 
|Currency translation adjustment |  |               | 0.5  |               |  |      | 2.9  |      |  |   | (3.3 | ) |  |   | 1.4  | 
|                                |  |               |      |               |  |      |      |      |  |   |      |   |  |   |      | 
|Comprehensive income            |  | $             | 12.4 |               |  | $    | 0.5  |      |  | $ | 33.9 |   |  | $ | 19.1 | 
|                                |  |               |      |               |  |      |      |      |  |   |      |   |  |   |      | 

Note 7  Segment Information.

Detroit Diesel has one reportable segment, consistent with
managements approach of making internal operating
decisions. Detroit Diesels operating segments are
identified by product. All products produced by the Company are
aggregated into one reportable operating segment, since the
nature of the products, production processes, manufacturing
facilities, distribution methods and the Companys principal
 customers are common or similar. There have been no changes in
reportable segments of the Company during the period.

Note 8  Dividend.

During the third quarter 1999 the Company declared a quarterly
dividend of $0.125 per common share outstanding which was
equivalent to $3.1 million. The dividend was paid during
October 1999.

Note 9  Special Charge.

The Company recorded a special charge of $12.5 million
during the third quarter of 1998 related to agreements with the
U.S. Environmental Protection Agency and the California Air
Resources Board regarding levels of oxides of nitrogen (NOx)
emissions from heavy-duty trucks under certain driving
conditions. The special charge is being paid in four annual
installments, the first of which was paid during July 1999.

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

Overview

Detroit Diesel Corporation reported record third quarter net
income of $11.9 million or $0.48 per share, an increase of
18% over third quarter 1998 net income of $10.1 million
(before a special charge). Revenues for the quarter were
$588.2 million compared to $543.0 million during the
third quarter 1998, while gross margin increased
0.3 percentage points to 23.8% compared to the third quarter
 1998. Total unit shipments increased 9% over the prior quarter
and marked the strongest third quarter for shipments in the
companys history, despite the anticipated reductions in
2-cycle unit shipments in conjunction with the PowerEvolution
program.

The Company also declared its third consecutive quarterly
dividend in the amount of $0.125 per share. For the nine months
ended September 30, 1999, total revenues were
$1.8 billion, a 5% increase over the first nine months of
1998. Year to date net income increased 23% over prior year
earnings before special charge to a record $37.2 million, or
 $1.51 per common share.

Results of Operations

The percentage relationships between net revenues and other
elements of the Companys Consolidated Statements of
Operations for the comparative reporting periods were:

|                                                 |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                 |  |                    |        |                  
|                                                 |  | Three months ended |        | Nine months ended
|                                                 |  | September 30,      |        | September 30,    
|                                                 |  |                    |        |                  
|                                                 |  | 1999               |        | 1998              |  | 1999 |        | 1998
|                                                 |  |                    |        |                   |  |      |        |     
|Net revenues                                     |  |                    | 100.0% |                   |  |      | 100.0% |      |  |  | 100.0% |  |  |  | 100.0% | 
|Cost of sales                                    |  |                    | 76.2%  |                   |  |      | 76.5%  |      |  |  | 76.2%  |  |  |  | 76.7%  | 
|                                                 |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|Gross profit                                     |  |                    | 23.8%  |                   |  |      | 23.5%  |      |  |  | 23.8%  |  |  |  | 23.3%  | 
|                                                
|                                                
|                                                
|                                                
|Expenses:                                        |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|Selling and administrative                       |  |                    | 15.6%  |                   |  |      | 16.0%  |      |  |  | 15.6%  |  |  |  | 15.8%  | 
|Research and development                         |  |                    | 4.7%   |                   |  |      | 4.2%   |      |  |  | 4.5%   |  |  |  | 4.2%   | 
|                                                 |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|Total                                            |  |                    | 20.3%  |                   |  |      | 20.2%  |      |  |  | 20.1%  |  |  |  | 20.0%  | 
|Income before interest, taxes and special charge |  |                    | 3.5%   |                   |  |      | 3.3%   |      |  |  | 3.7%   |  |  |  | 3.3%   | 
|Interest                                         |  |                    | 0.3%   |                   |  |      | 0.5%   |      |  |  | 0.3%   |  |  |  | 0.5%   | 
|Special charge                                   |  |                    | %     |                   |  |      | 2.3%   |      |  |  | %     |  |  |  | 0.8%   | 
|                                                 |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|Income before income taxes                       |  |                    | 3.2%   |                   |  |      | 0.5%   |      |  |  | 3.4%   |  |  |  | 2.0%   | 
|Provision for income taxes                       |  |                    | 1.2%   |                   |  |      | 0.9%   |      |  |  | 1.3%   |  |  |  | 1.0%   | 
|                                                 |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|Net income (loss)                                |  |                    | 2.0%   |                   |  |      | (0.4%  | )    |  |  | 2.1%   |  |  |  | 1.0%   | 
|                                                 |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 

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The Companys net revenues for each of its markets were:

|              |              |                    |     |                   |  |      |     |      |  |   |       |       |  |   |     |       | 
|------------- | ------------ | ------------------ | --- | ----------------- |  | ---- | --- | ---- |  | - | ----- | ----- |  | - | --- | ----- | 
|              |              |                    |     |                  
|              |              | Three months ended |     | Nine months ended
|              |              | September 30,      |     | September 30,    
|              |              |                    |     |                  
|              |              | 1999               |     | 1998              |  | 1999 |     | 1998
|(In millions) |              |                    |     |                   |  |      |     |     
|On-Highway    |              | $                  | 398 |                   |  | $    | 335 |      |  | $ | 1,157 |       |  | $ | 993 |      
|Off-Road      |              |                    | 148 |                   |  |      | 170 |      |  |   | 468   |       |  |   | 549 |      
|Automotive    |              |                    | 42  |                   |  |      | 38  |      |  |   | 140   |       |  |   | 146 |      
|              |              |                    |     |                   |  |      |     |      |  |   |       |       |  |   |     |      
|              | Net revenues |                    | $   | 588               |  |      | $   | 543  |  |   | $     | 1,765 |  |   | $   | 1,688 | 
|              |              |                    |     |                   |  |      |     |      |  |   |       |       |  |   |     |      

Three and Nine Months Ended September 30, 1999 Compared
to the Three and Nine Months Ended September 30, 1998

Net Revenues.Net revenues for the three and nine
months ended September 30, 1999 were $588.2 million and
$1,764.9 million compared to $543.0 million and
$1,688.1 million for the comparable periods in 1998. Total
heavy-duty engine shipments for the three and nine months ended
September 30, 1999 were approximately 26,300 and 76,800
units, respectively, and represent an increase of 15% and 13%
over the comparable periods in 1998. The increase was the result
of strong demand for the Series 60 engine, as unit volumes
increased 21% for the nine months ended September 30, 1999
over the same period in 1998.

Total unit shipments for the three and nine months ended
September 30, 1999 increased approximately 9% and 5%,
respectively, to 40,100 and 124,800. The increase in total unit
shipments reflects the continued strength of the North American
on-highway heavy-duty truck market and the strong customer demand
 for the Series 60 engine.

Net revenues in the on-highway market increased 19% and 17%,
respectively, for the three and nine months ended
September 30, 1999 compared to the same periods in 1998.
Strong revenues in this area reflect consistent demand for the
Series 60 engine in on-highway applications and the
Companys ability to adapt its products to meet changing
customer demands. Net revenues in the off-road market were
$148 million and $468 million for the three and nine
months ended September 30, 1999, respectively, compared to
revenues of $170 million and $549 million for the three and
nine months ended September 30, 1998, respectively. The
decrease in this market is the result of the planned completion
of the majority of the Companys 2-cycle production under
the PowerEvolution program offset by increases in 4-cycle
offerings to this market, especially in the genset and
construction and industrial sectors. Revenues in this market also
 reflect the weakness in the mining and energy sectors during the
 early part of 1999, which have shown signs of improvement during
 the third quarter. Automotive market revenues increased 11% for
the three months ended September 30, 1999 compared to the
same period in 1998, while declining slightly for the respective
nine-month period. Improved shipment levels achieved by certain
OEM introductions during the quarter was the main factor
contributing to the strong increase quarter over quarter. Year to
 date revenues were $140 million compared to
$146 million in 1998.

Gross Profit.Gross profit for the three and nine
months ended September 30, 1999 was $140.0 million and
$419.3 million, respectively, an increase of
$12.5 million and $26.4 million, over the same periods
in 1998. Gross margin increased to 23.8% for the three and nine
months ended September 30, 1999. This represents an increase
 of 0.3 and 0.5 percentage points, respectively, over the
same periods in 1998. The increase in gross margin is attributed
to

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continuing favorable sales mix of the Companys heavy-duty
engines and the effects of cost reduction and operating
performance enhancement programs such as PowerEvolution and
Continuous Customer Value Improvement (CCVI).

Selling and Administrative Expenses.Selling and
administrative expenses for the three months ended
September 30, 1999 were $91.8 million or 15.6% of net
revenues, compared to $86.8 million or 16.0% of net revenues
 in 1998. The decrease in selling and administrative expenses
relates to the Companys focus on controlling expenses
offset by incremental increases related to higher sales volumes.
Selling and administrative expenses for the nine months ended
September 30, 1999 were $274.2 million or 15.5% of net
revenues compared to $266.0 million or 15.8% of net revenues
 for the same period in 1998.

Research and Development Expenses.Research and
development expenses have increased for the three and nine months
 ended September 30, 1999 to $27.7 million and
$80.0 million, respectively. The increase in research and
development spending is attributed to automotive initiatives
aimed at securing future automotive business opportunities,
further development of the Series 60 marine product and the
development of the next generation of the Series 60
on-highway truck engines.

Interest Expense.Interest expense decreased
$1.2 million and $2.8 million, respectively, for the three
and nine months ended September 30, 1999 compared to the
same periods in 1998. The lower level of interest expense in 1999
 is attributed to the Companys lower average debt balances
and lower average interest rates versus the same periods in 1998.

Income Tax Expense.Income tax expense is reported
during interim reporting periods on the basis of the
Companys estimated annual effective tax rate for the
taxable jurisdictions in which the Company operates. The Company
estimates that its annual effective tax rate for 1999 will be
approximately 37%. The effective tax rate for the three and nine
months ended September 30, 1998 was affected by the special
charge which was not deductible for tax purposes. Income tax
expense for the three and nine months ended September 30,
1999 was $7.0 million and $21.9 million, respectively.

Net Income.Net income for the three and nine
months ended September 30, 1999 was $11.9 million and
$37.2 million, respectively. This represents an increase of
18% and 23%, respectively, over pre-charge earnings for the same
periods in 1998.

Liquidity and Capital Resources

Historically, the Companys primary sources of liquidity
have been cash provided by operations and bank borrowings under
various revolving lines of credit and bank notes, including the
Companys $300 million revolving line of credit, of
which approximately $294.6 million was available as of
September 30, 1999. Additionally, the Companys
subsidiary in Italy, VM Motori S.p.A. (VM), has
$89.2 million in unsecured, short-term lines of credit with
several banks, of which approximately $40.3 million was
available at September 30, 1999.

Cash provided by operations for the nine months ended
September 30, 1999 was $69.7 million. Capital
expenditures were $44.9 million for the first nine months of
 1999 and were used to upgrade existing machinery, equipment and
tooling.

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The Company is subject to the risk of changes in foreign currency
 exchange rates due to its operations located outside of the
United States. Changes in foreign currency exchange rates are
generally reported as a component of stockholders equity.
Changes in the value of the Italian Lira, the Singapore Dollar
and the Brazilian Real impact the Companys translation
adjustments. Additionally, the Company has recorded liabilities
approximating 40.1 million in Deutschmarks (DM)
as of September 30, 1999. Changes in the value of the DM
versus the United States Dollar will affect the Companys
results of operations and financial position.

The Company expects that it will be able to satisfy on-going cash
 requirements (including capital expenditures, expenditures for
environmental compliance and other projects), for the next twelve
 months and thereafter, with cash flow from operations,
supplemented, if necessary, by borrowings under its
$300 million revolving line of credit and its other sources
of credit.

In November 1999, the Board of Directors authorized the
repurchase of up to ten percent of the Companys outstanding
 common stock. Shares may be acquired from time to time over a
two-year period either through open market purchases or
negotiated transactions based upon market conditions.

Year 2000

State of Readiness

Detroit Diesel Corporations Information Technology
department is coordinating the evaluation and resolution of the
Companys Year 2000 issues. Major groups such as operations,
 engineering, purchasing, financial and human resources have been
 identified to assume specific responsibility for tracking and
resolving Year 2000 issues relating to the Companys
business, including core business systems, user-controlled plant
processes, user-controlled research and development processes,
suppliers and payroll.

Detroit Diesel has completed a review of its operations for Year
2000 compliance. As a result of this review, the Company has
engaged a third party to work with internal staff to modify
affected business information systems so that they are Year 2000
compliant. Modifications to critical business systems were made
or solutions acquired in 1998 thus permitting sufficient test
time without disruption to the ongoing business. Implementation
and testing of Year 2000 remedies for all critical systems were
completed on schedule at the end of the second quarter in 1999.
Audits have begun and will be conducted throughout the remainder
of 1999 in sufficient time to correct any additional Year 2000
issues that may be identified. Costs associated with the
remaining testing are not considered to be material.

The Company has determined that Detroit Diesel engines, together
with standard ECM hardware and program software (DDEC and MDEC),
are Year 2000 compliant. The Company has determined that its
other electronic and software products are Year 2000 compliant,
either as designed or with available upgrades. An independent
review was conducted on the DDEC programs to verify compliance.
No Year 2000 errors were found as a result of the audit.

The Company is also undertaking a review of companies with whom
it transacts business to determine their Year 2000 compliance.
Key suppliers and customers have been targeted in this review. As
 part of this evaluation, the Company sent out Year 2000
questionnaires and has visited certain supplier and distributor
sites. Results indicate a range of Year 2000 activity by these
companies, a small number of which have been designated for
further review.

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##### Table of Contents



Costs to Address the Year 2000 Issue

The costs associated with Year 2000 compliance primarily consist
of personnel expenses for those persons dedicated to the effort
and for professional fees paid to third party providers for
assistance and audit related activities. It is the Companys
 policy to expense these costs as incurred. Additionally, the
Company has invested in new and upgraded hardware and software to
 solve the Year 2000 issues. In these instances, the Company will
 capitalize allowable costs in accordance with its policies and
procedures.

Costs to complete the Year 2000 project are expected to total
approximately $2.5 million. The estimated cost does not
include the Companys potential share of Year 2000 costs
that may be incurred by partnerships and joint ventures in which
the Company participates but is not the operator. Additionally,
the Company has funded, and expects to continue to fund, the
costs associated with its Year 2000 activities from its current
operations.

Risks Presented by Year 2000 Issues

Successful execution of the Companys Year 2000 project
results in mission critical internal systems becoming Year 2000
compliant on a timely basis. If, however, Year 2000 issues
persist in these systems, there could be an interruption in, or
failure of, the Companys normal business activities, that
could have a material adverse effect on the Companys
operations, liquidity and financial condition.

The Companys Year 2000 project will also help to improve
the Companys information on the preparedness of third
parties with whom it transacts business. While the information is
 valuable in helping the Company assess these Year 2000 risks,
there can be no assurances that the information received is
accurate or complete, that these third parties have fully
anticipated their Year 2000 exposure, or that these third parties
 will become Year 2000 compliant on a timely basis. If Year 2000
issues persist with these third parties, then there could be an
interruption in, or failure of, the Companys normal
business activities, that could have a material adverse effect on
 the Companys operations, liquidity and financial
condition. At this time, there is insufficient information to
evaluate the likelihood of such an occurrence.

In addition, there are Year 2000 issues that will generally
affect all businesses, including the Company, such as the Year
2000 compliance of public utility companies and governmental
agencies. If such Year 2000 issues occur, then there could be an
interruption in, or failure of, the Companys normal
business activities, that could have a material adverse effect on
 the Companys operations, liquidity and financial
condition. At this time, there is insufficient information to
evaluate the likelihood of such an occurrence.

Contingency Plans

While the Company would generally expect to manage business
interruptions relating to Year 2000 issues in a manner similar to
 other potential interruption issues encountered in the regular
course of business, the Company is developing certain additional
contingency plans relating specifically to Year 2000 issues. For
example, the current contingency plan would allow the Company to
operate certain critical functions for a short period of time
without the intervention of computers and to establish programs
with suppliers to build inventory during the latter part of 1999.
 The Company is in the process of modifying its contingency
plans, as necessary, as it finalizes its Year 2000 project.
However, the contingency plans are expected to provide relief
only for short periods, after which there could be an
interruption in, or failure of, the Companys normal
business activities, that could have a material adverse effect on
 the Companys operations, liquidity and financial
condition.

A rapid response team made up of company executives and key
members of the major remediation groups has also been
established. This team will be available in early January to
assess and implement action plans as situations arise. The team
will use the fourth quarter to develop and analyze various
scenarios in preparation for December and January activities.

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Prospective Information

The Company anticipates continued strong financial performance
throughout 1999, based upon current forecasts, primarily
generated through a continued emphasis on cost reduction
activities and operating performance enhancements. Cost reduction
 and operating performance enhancement programs such as CCVI and
PowerEvolution are expected to continue to have a positive impact
 on operating margins and earnings. Currently, the Company is
working on several new Series 60 and automotive diesel
engine applications. New Series 60 products include a marine
pleasure craft engine which should be in full production in early
 2000 and the next generation of Series 60 on-highway truck
engines set to debut in 2002. New automotive projects include
applications for passenger car, mini van, sport utility vehicle
and smaller commercial applications including the 2.5 liter, 3.0
liter V-6 VECTER and the 4.0 liter V-6 DELTA engines. The Company
 will also continue to pursue merger and acquisition targets as
well as partnerships that have strategic value.

Cautionary Statement for Purposes of Safe
Harbor Under the Private Securities Litigation Reform Act
of 1995

This document may include projections, forecasts and other
forward-looking statements about the Company, the industry in
which it competes and the markets it serves. The achievement of
such projections, forecasts and other forward-looking statements
is subject to certain risks and uncertainties, fully detailed in
the Cautionary Statement for purposes of Safe
Harbor under the Private Securities Litigation Reform Act
of 1995 in the Companys Annual Report on
Form 10-K for the year ended December 31, 1998, which
is on file with the Securities and Exchange Commission.
Similarly, any projections, forecasts and other forward-looking
statements in this document relating to the Year 2000 issue,
including the Companys remedial plans, are also subject to
certain risks and uncertainties as detailed in this document.

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PART II  OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits:

|        |    |             |  |                        
|------- | -- | ----------- |  | -----------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 27 |             |  | Financial Data Schedule

(b)  No reports on Form 8-K were required for this
reporting period.

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SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



| |                           
| | --------------------------
| | DETROIT DIESEL CORPORATION



| |     |                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | By: | /s/ R. E. BELTS 
	 _______________________________________ 
	 R. E. Belts 
	 Its:  Senior Vice President-Finance and Chief Financial
	Officer (Principal Financial Officer)

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EXHIBIT INDEX


The following constitutes the exhibits to the Quarterly Report on
 Form 10-Q of the Company for the period ended
September 30, 1999:

|        |    |         |  |                         |  |  |    | 
|------- | -- | ------- |  | ----------------------- |  |  | -- | 
|        |    |         |  | Sequential             
|Exhibit |    |         |  | Page                   
|Number  |    | Exhibit |  | Number                 
|        |    |         |  |                        
|        | 27 |         |  | Financial Data Schedule |  |  | 17 | 

16