UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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 June 30, 2000.

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 |  | 23,120,291 Shares           
|Class                        |  | Outstanding at July 31, 2000

This report contains 16 pages. The exhibit index is on page 15.





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TABLE OF CONTENTS

|                               |                                                                                                    |                                                                                             |    |    |          |   | 
|------------------------------ | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | -- | -- | -------- | - | 
|                               |                                                                                                    |                                                                                             |    |    | Page No.
|PART I  FINANCIAL INFORMATION
|                              
|                              
|                              
|                              
|                               | Item 1. Financial Statements                                                                      
|                              
|                              
|                              
|                              
|                               |                                                                                                    | Consolidated Statements of Income for the Three
and Six months ended June 30, 2000 and 1999 |    |    | 3        |  
|                              
|                              
|                              
|                              
|                               |                                                                                                    | Consolidated Balance Sheets at June 30, 2000
and December 31, 1999                          |    |    | 4        |  
|                              
|                              
|                              
|                              
|                               |                                                                                                    | Consolidated Statements of Cash Flows for the
Six months ended June 30, 2000 and 1999       |    |    | 5        |  
|                              
|                              
|                              
|                              
|                               |                                                                                                    | Notes to Unaudited Consolidated Financial Statements                                        |    |    | 6        |  
|                              
|                              
|                              
|                              
|                               | Item 2. Managements Discussion and Analysis of
     Financial Condition and Results of Operations
|                              
|                              
|                              
|                              
|                               |                                                                                                    |                                                                                             |    |    |          | 8 | 
|PART II  OTHER INFORMATION   
|                              
|                              
|                              
|                              
|                               | Item 6. Exhibits and Reports on Form 8-K                                                           |                                                                                             |    | 13 |         
|                              
|                              
|                              
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|SIGNATURE                      |                                                                                                    |                                                                                             | 14 |   
|                              
|                              
|                              
|                              
|EXHIBIT INDEX                  |                                                                                                    |                                                                                             | 15 |   

2



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Detroit Diesel Corporation Form 10-Q (continued)

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

DETROIT DIESEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |       |       | 
|---------------------------- | ----- | ------------ | ----- | --------------------------- | ----- | ------------------------- | ----- | ----- | ----- | ---- | ------- | ----- | ----- | - | ------- | ----- | ----- | 
|                             |       |              |       | Three months ended June 30, |       | Six months ended June 30,
|                             |       |              |       | 2000                        |       | 1999                      |       | 2000  |       | 1999
|                             |       |              |       |                             |       |                           |       |       |       |     
|Net revenues                 |       | $            | 538.0 |                             |       | $                         | 585.2 |       |       | $    | 1,074.2 |       |       | $ | 1,176.7 |      
|                            
|                            
|                            
|                            
|Cost of sales                |       |              | 410.2 |                             |       |                           | 445.1 |       |       |      | 812.7   |       |       |   | 897.4   |      
|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |      
|                             |       | Gross profit |       |                             | 127.8 |                           |       |       | 140.1 |      |         |       | 261.5 |   |         |       | 279.3 | 
|                            
|                            
|                            
|                            
|Expenses:                   
|                            
|                            
|                            
|                            
|Selling and administrative   |       |              | 85.5  |                             |       |                           | 90.0  |       |       |      | 174.6   |       |       |   | 182.4   |      
|                            
|                            
|                            
|                            
|Research and development     |       |              | 25.5  |                             |       |                           | 27.7  |       |       |      | 52.1    |       |       |   | 52.3    |      
|                            
|                            
|                            
|                            
|Interest                     |       |              | 2.8   |                             |       |                           | 2.1   |       |       |      | 5.0     |       |       |   | 4.4     |      
|                             |       |              |       |                            
|                             | Total |              |       | 113.8                       |       |                           |       | 119.8 |       |      |         | 231.7 |       |   |         | 239.1 |      
|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |      
|Income before income taxes   |       |              | 14.0  |                             |       |                           | 20.3  |       |       |      | 29.8    |       |       |   | 40.2    |      
|                            
|                            
|                            
|                            
|Provision for income taxes   |       |              | 4.3   |                             |       |                           | 7.5   |       |       |      | 10.0    |       |       |   | 14.9    |      
|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |      
|Net income                   |       | $            | 9.7   |                             |       | $                         | 12.8  |       |       | $    | 19.8    |       |       | $ | 25.3    |      
|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |      
|Basic net income per share   |       | $            | .42   |                             |       | $                         | .52   |       |       | $    | .85     |       |       | $ | 1.03    |      
|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |      
|Diluted net income per share |       | $            | .42   |                             |       | $                         | .52   |       |       | $    | .85     |       |       | $ | 1.02    |      
|                             |       |              |       |                             |       |                           |       |       |       |      |         |       |       |   |         |      

See accompanying Notes to Unaudited Consolidated Financial Statements.

3



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Detroit Diesel Corporation Form 10-Q (continued)

DETROIT DIESEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)

|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |        |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------ | ------------------------------------------ |  |  |  |  | - | ----------- | ------- |  |  |  |  | ------------ | - | ------ | ------- | 
|                                     |                                                                                                  |                                            |  |  |  |  |   | June 30,    |         |  |  |  |  | December 31,
|                                     |                                                                                                  |                                            |  |  |  |  |   | 2000        |         |  |  |  |  | 1999        
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |             
|                                     |                                                                                                  |                                            |  |  |  |  |   | (Unaudited)
|ASSETS                              
|                                    
|                                    
|                                    
|                                    
|                                     | Current Assets:                                                                                 
|                                    
|                                    
|                                    
|                                    
|                                     | Cash                                                                                             |                                            |  |  |  |  | $ | 6.7         |         |  |  |  |  |              | $ | 2.9    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts and notes receivable, net                                                               |                                            |  |  |  |  |   | 321.9       |         |  |  |  |  |              |   | 310.2  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                                                      |                                            |  |  |  |  |   | 348.9       |         |  |  |  |  |              |   | 344.3  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses, deferred charges and other current assets                                      |                                            |  |  |  |  |   | 23.4        |         |  |  |  |  |              |   | 10.3   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax assets                                                                              |                                            |  |  |  |  |   | 51.9        |         |  |  |  |  |              |   | 62.0   |        
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                  | Total Current Assets                       |  |  |  |  |   |             | 752.8   |  |  |  |  |              |   |        | 729.7   | 
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Property, Plant and Equipment:                                                                  
|                                    
|                                    
|                                    
|                                    
|                                     | Land and buildings                                                                               |                                            |  |  |  |  |   | 98.3        |         |  |  |  |  |              |   | 98.4   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Machinery, equipment and tooling                                                                 |                                            |  |  |  |  |   | 456.5       |         |  |  |  |  |              |   | 441.7  |        
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                  | Total Property, Plant and Equipment        |  |  |  |  |   |             | 554.8   |  |  |  |  |              |   |        | 540.1   | 
|                                    
|                                    
|                                    
|                                    
|                                     | Less: accumulated depreciation                                                                   |                                            |  |  |  |  |   | (243.9      | )       |  |  |  |  |              |   | (226.7 | )      
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                     |                                                                                                  | Net Property, Plant and Equipment          |  |  |  |  |   |             | 310.9   |  |  |  |  |              |   |        | 313.4   | 
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                     | Deferred Tax Assets                                                                              |                                            |  |  |  |  |   | 8.7         |         |  |  |  |  |              |   | 15.9   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Intangible Assets, net                                                                           |                                            |  |  |  |  |   | 113.1       |         |  |  |  |  |              |   | 118.5  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other Assets                                                                                     |                                            |  |  |  |  |   | 51.6        |         |  |  |  |  |              |   | 53.6   |        
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                     |                                                                                                  | Total Assets                               |  |  |  |  |   | $           | 1,237.1 |  |  |  |  |              |   | $      | 1,231.1 | 
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|                                     | Current Liabilities:                                                                            
|                                    
|                                    
|                                    
|                                    
|                                     | Notes payable                                                                                    |                                            |  |  |  |  | $ | 36.8        |         |  |  |  |  |              | $ | 27.4   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                 |                                            |  |  |  |  |   | 292.7       |         |  |  |  |  |              |   | 294.8  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses                                                                                 |                                            |  |  |  |  |   | 216.1       |         |  |  |  |  |              |   | 239.5  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt and capital leases                                             |                                            |  |  |  |  |   | 2.8         |         |  |  |  |  |              |   | 3.4    |        
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                  | Total Current Liabilities                  |  |  |  |  |   |             | 548.4   |  |  |  |  |              |   |        | 565.1   | 
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                     | Long-Term Debt and Capital Leases                                                                |                                            |  |  |  |  |   | 79.6        |         |  |  |  |  |              |   | 47.1   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other Liabilities                                                                                |                                            |  |  |  |  |   | 184.9       |         |  |  |  |  |              |   | 196.0  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Tax Liabilities                                                                         |                                            |  |  |  |  |   | 21.9        |         |  |  |  |  |              |   | 24.2   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Income                                                                                  |                                            |  |  |  |  |   | 4.7         |         |  |  |  |  |              |   | 5.0    |        
|                                    
|                                    
|                                    
|                                    
|                                     | 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 |                                            |  |  |  |  |   | .2          |         |  |  |  |  |              |   | .2     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                       |                                            |  |  |  |  |   | 224.3       |         |  |  |  |  |              |   | 224.3  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Treasury stock, at cost (Note 9)                                                                 |                                            |  |  |  |  |   | (28.9       | )       |  |  |  |  |              |   | (20.6  | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income                                                           |                                            |  |  |  |  |   | (15.8       | )       |  |  |  |  |              |   | (14.0  | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                |                                            |  |  |  |  |   | 217.8       |         |  |  |  |  |              |   | 203.8  |        
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                     |                                                                                                  | Total Stockholders Equity                 |  |  |  |  |   |             | 397.6   |  |  |  |  |              |   |        | 393.7   | 
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       
|                                     |                                                                                                  | Total Liabilities and Stockholders Equity |  |  |  |  |   | $           | 1,237.1 |  |  |  |  |              |   | $      | 1,231.1 | 
|                                     |                                                                                                  |                                            |  |  |  |  |   |             |         |  |  |  |  |              |   |       

See accompanying Notes to Unaudited Consolidated Financial Statements.

4



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Detroit Diesel Corporation Form 10-Q (continued)

DETROIT DIESEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |       |      |       |  
|------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------- | ----- | ---------------- | ----- | ----- | ----- | ---- | ----- | -
|                                                                                            |                                                            |                                                                   |                                                             |       | Six months ended
|                                                                                            |                                                            |                                                                   |                                                             |       | June 30,        
|                                                                                            |                                                            |                                                                   |                                                             |       |                 
|                                                                                            |                                                            |                                                                   |                                                             |       | 2000             |       | 1999 
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |      
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Net income                                                                                  |                                                            | $                                                                 | 19.8                                                        |       |                  | $     | 25.3  |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Adjustments to reconcile net income to net cash
(Used in) provided by operating activities:
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            | Depreciation and amortization                                     |                                                             |       | 23.7             |       |       |       | 26.4 |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            | Changes in assets and liabilities which
    Provided (used) cash:
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Accounts and notes receivable                               |       |                  | (14.1 | )     |       |      | (55.4 | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Inventories                                                 |       |                  | (6.4  | )     |       |      | (4.6  | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Prepaid expenses, deferred charges and other current assets |       |                  | (13.4 | )     |       |      | (0.8  | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Deferred taxes                                              |       |                  | 16.4  |       |       |      | (2.4  | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Accounts payable                                            |       |                  | 2.0   |       |       |      | 39.5  |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Accrued expenses and other liabilities                      |       |                  | (33.1 | )     |       |      | 22.8  |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            |                                                                   | Intangible and other assets                                 |       |                  | (0.3  | )     |       |      | (2.2  | )
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|Net Cash (Used In) Provided By Operating Activities                                         |                                                            |                                                                   | (5.4                                                        | )     |                  |       | 48.6  |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Acquisition of property, plant and equipment, net          |                                                                   |                                                             | (22.3 | )                |       |       | (21.6 | )   
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Liquidation (acquisition) of subsidiaries                  |                                                                   |                                                             | 1.8   |                  |       |       | (9.3  | )   
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|Net Cash Used In Investing Activities                                                       |                                                            |                                                                   | (20.5                                                       | )     |                  |       | (30.9 | )    
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net proceeds from (payments on) notes payable              |                                                                   |                                                             | 10.7  |                  |       |       | (4.1  | )   
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net proceeds from (payments on) other long-term borrowings |                                                                   |                                                             | 33.4  |                  |       |       | (10.3 | )   
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Purchase of treasury stock                                 |                                                                   |                                                             | (8.2  | )                |       |       |      |     
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Payment of dividends                                       |                                                                   |                                                             | (5.9  | )                |       |       | (3.1  | )   
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|Net Cash Provided By (Used In) Financing Activities                                         |                                                            |                                                                   | 30.0                                                        |       |                  |       | (17.5 | )    
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Effect of Exchange Rate Changes on Cash                                                     |                                                            |                                                                   | (0.3                                                        | )     |                  |       | 0.7   |      
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|Net Increase In Cash                                                                        |                                                            |                                                                   | 3.8                                                         |       |                  |       | 0.9   |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Cash at the Beginning of the Period                                                         |                                                            |                                                                   | 2.9                                                         |       |                  |       | 3.2   |      
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|Cash at the End of the Period                                                               |                                                            | $                                                                 | 6.7                                                         |       |                  | $     | 4.1   |      
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                         
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Cash paid during the period for:                          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                            | Interest                                                          |                                                             | $     | 5.0              |       |       | $     | 4.2  |      
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      
|                                                                                            |                                                            | Income taxes                                                      |                                                             | $     | 3.7              |       |       | $     | 14.7 |      
|                                                                                            |                                                            |                                                                   |                                                             |       |                  |       |       |      

See accompanying Notes to Unaudited Consolidated Financial Statements.

5



---



Detroit Diesel Corporation Form 10-Q (continued)

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
June 30, 2000 and the results of its operations for the three and six month
periods ended June 30, 2000 and 1999 and cash flows for the six month periods
ended June 30, 2000 and 1999.
      The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Companys 1999 Annual Report to Stockholders. The results of operations for
the six month period ended June 30, 2000 will not necessarily be indicative of
the operating results for the full year.

Note 2  Inventories.

Inventories (principally using the first-in, first-out method) consist of
the following:

|                                            |  |             |       |              |  |   |       |  
|------------------------------------------- |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                            |  | June 30,    |       | December 31,
|(In millions)                               |  | 2000        |       | 1999        
|                                            |  |             |       |             
|                                            |  | (Unaudited)
|Productive                                  |  | $           | 174.8 |              |  | $ | 174.3 |  
|                                           
|                                           
|                                           
|                                           
|Service parts                               |  |             | 108.9 |              |  |   | 109.2 |  
|                                           
|                                           
|                                           
|                                           
|Remanufactured parts                        |  |             | 58.9  |              |  |   | 53.1  |  
|                                           
|                                           
|                                           
|                                           
|Non-productive                              |  |             | 6.3   |              |  |   | 7.7   |  
|                                            |  |             |       |              |  |   |       |  
|Total                                       |  | $           | 348.9 |              |  | $ | 344.3 |  
|                                            |  |             |       |              |  |   |       |  
|The components of productive inventory are:
|                                           
|                                           
|                                           
|                                           
|Raw materials                               |  |             | 54    | %            |  |   | 60    | %
|                                           
|                                           
|                                           
|                                           
|Work in process                             |  |             | 25    | %            |  |   | 21    | %
|                                           
|                                           
|                                           
|                                           
|Finished product                            |  |             | 21    | %            |  |   | 19    | %

Note 3  Intangible Assets.
      Intangible assets include goodwill of $68.7 million and $72.3 million at
June 30, 2000 and December 31, 1999, respectively. Accumulated amortization of
intangible assets as of June 30, 2000 and December 31, 1999 was $37.3 million
and $34.1 million, respectively.

6



---



Detroit Diesel Corporation Form 10-Q (continued)

Note 4  Net Income Per Share.

|                                                          |                 |      |                    |        |                  |      |      |        |  |   |      |        |  |   |      |        | 
|--------------------------------------------------------- | --------------- | ---- | ------------------ | ------ | ---------------- | ---- | ---- | ------ |  | - | ---- | ------ |  | - | ---- | ------ | 
|                                                          |                 |      | Three months ended |        | Six months ended
|                                                          |                 |      | June 30,           |        | June 30,        
|(In millions, except per share data)                      |                 | 2000 |                    | 1999   |                  | 2000 |      | 1999  
|                                                         
|                                                         
|                                                         
|                                                         
|Net income applicable to
common shares                    |                 | $    | 9.7                |        |                  | $    | 12.8 |        |  | $ | 19.8 |        |  | $ | 25.3 |       
|                                                          |                 |      |                    |        |                  |      |      |        |  |   |      |        |  |   |      |       
|Weighted average common
shares outstanding, in
thousands:
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Basic           |      |                    | 23,173 |                  |      |      | 24,705 |  |   |      | 23,322 |  |   |      | 24,704 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Dilutive effect |      |                    | 12     |                  |      |      | 103    |  |   |      | 43     |  |   |      | 83     | 
|                                                         
|                                                         
|                                                         
|                                                         
|Income per common share:                                 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Basic           |      | $                  | .42    |                  |      | $    | .52    |  |   | $    | .85    |  |   | $    | 1.03   | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Diluted         |      | $                  | .42    |                  |      | $    | .52    |  |   | $    | .85    |  |   | $    | 1.02   | 
|                                                          |                 |      |                    |        |                  |      |      |        |  |   |      |        |  |   |      |       

Note 5  Commitments and Contingencies.
      The Company is contingently liable for letters of credit and guarantees to
banks aggregating $28.1 million at June 30, 2000.

Note 6  Comprehensive Income.
      The reconciliation of net income to comprehensive income is as follows:

|                                |  |                    |      |                  |  |      |      |      |  |   |      |   |  |   |      |  
|------------------------------- |  | ------------------ | ---- | ---------------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                |  | Three months ended |      | Six months ended | 
|                                |  | June 30,           |      | June 30,         | 
|(In millions)                   |  | 2000               |      | 1999             |  | 2000 |      | 1999
|                                |  |                    |      |                  |  |      |      |     
|Net income                      |  | $                  | 9.7  |                  |  | $    | 12.8 |      |  | $ | 19.8 |   |  | $ | 25.3 |  
|                               
|                               
|                               
|                               
|Currency
translation
adjustment |  |                    | (0.4 | )                |  |      | (1.1 | )    |  |   | (1.8 | ) |  |   | (3.7 | )
|                                |  |                    |      |                  |  |      |      |      |  |   |      |   |  |   |      |  
|Comprehensive income            |  | $                  | 9.3  |                  |  | $    | 11.7 |      |  | $ | 18.0 |   |  | $ | 21.6 |  
|                                |  |                    |      |                  |  |      |      |      |  |   |      |   |  |   |      |  

Note 7  Segment Information.
      Detroit Diesel has one reportable segment, consistent with managements
approach of making internal operating decisions. All products produced by the
Company are aggregated into one reportable operating segment, since the nature
of the products, production processes, distribution methods and the Companys
principal customers are similar. There have been no changes in reportable
segments of the Company during the period.

Note 8  Dividend.
      During the second quarter 2000 the Company declared a quarterly dividend
of $.125 per share outstanding or $2.9 million. The dividend was paid during
July of 2000.

Note 9  Treasury Stock.
      Treasury stock consists of 1.6 million and 1.1 million common shares at
June 30, 2000 and December 31, 1999, respectively.

7



---



Detroit Diesel Corporation Form 10-Q (continued)

Note 10  Subsequent Event.
      On July 20, 2000 DDC announced the signing of an agreement to merge with a
subsidiary of DaimlerChrysler AG (DaimlerChrysler). Under the terms of the
agreement, DaimlerChrysler, a shareholder of DDC that currently owns 21.3% of
the outstanding common shares of DDC, will commence a cash tender offer to
acquire the remaining 78.7% of the Company at $23.00 per common share for a
total transaction value of $423 million. Penske Corporation, which currently
owns 48.6% of the outstanding common shares of DDC, has committed to tender its
shares to DaimlerChrysler. The Companys Board of Directors has approved the
tender offer and agreement. It is anticipated that the transaction will be
completed by the fall of 2000.

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

Overview

Detroit Diesel Corporation reported net revenues for the quarter of $538.0
million, compared to record second quarter 1999 revenues of $585.2 million.
Net income for the quarter was $9.7 million, or $0.42 per share, compared to
$12.8 million, or $0.52 per share, in 1999. First and second quarter 2000
results were impacted by a softening in the North American on-highway
heavy-duty truck market. Total second quarter 2000 engine shipments were
approximately 40,500 units compared to approximately 42,300 units in the second
quarter 1999. Series 60 engine shipments for the quarter declined 17% compared
to the second quarter 1999, while the Companys Series 2000, Series 4000,
Series 50 and automotive products all reported increased shipments. Year to
date total shipments were approximately 76,900 units compared to approximately
84,700 units in the first six months of 1999, including a decline in two-cycle
engine shipments of over 2,000 units due to the Companys PowerEvolution
program. Revenues from parts and remanufactured products for the quarter were
$110 million compared to $112 million in the second quarter 1999. Sales of
remanufactured products continued to show improvement while service parts
revenues were affected by the timing of certain promotion programs.

8



---



Detroit Diesel Corporation Form 10-Q (continued)

Results of Operations

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

|                           |  |              |       |                             |      |                           |       |      |      |      |       |      |      |   |       |      |      |  
|-------------------------- |  | ------------ | ----- | --------------------------- | ---- | ------------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | - | ----- | ---- | ---- | -
|                           |  |              |       | Three months ended June 30, |      | Six months ended June 30,
|                           |  |              |       | 2000                        |      | 1999                      |       | 2000 |      | 1999
|                           |  |              |       |                             |      |                           |       |      |      |     
|Net revenues               |  |              | 100.0 | %                           |      |                           | 100.0 | %    |      |      | 100.0 | %    |      |   | 100.0 | %   
|                          
|                          
|                          
|                          
|Cost of sales              |  |              | 76.2  | %                           |      |                           | 76.1  | %    |      |      | 75.7  | %    |      |   | 76.3  | %   
|                           |  |              |       |                             |      |                           |       |      |      |      |       |      |      |   |       |     
|                           |  | Gross profit |       |                             | 23.8 | %                         |       |      | 23.9 | %    |       |      | 24.3 | % |       |      | 23.7 | %
|                          
|                          
|                          
|                          
|Expenses:                 
|                          
|                          
|                          
|                          
|Selling and administrative |  |              | 15.9  | %                           |      |                           | 15.4  | %    |      |      | 16.3  | %    |      |   | 15.5  | %   
|                          
|                          
|                          
|                          
|Research and development   |  |              | 4.8   | %                           |      |                           | 4.7   | %    |      |      | 4.8   | %    |      |   | 4.4   | %   
|                          
|                          
|                          
|                          
|Interest                   |  |              | 0.5   | %                           |      |                           | 0.4   | %    |      |      | 0.5   | %    |      |   | 0.4   | %   
|                           |  |              |       |                            
|                           |  | Total        |       | 21.2                        | %    |                           |       | 20.5 | %    |      |       | 21.6 | %    |   |       | 20.3 | %   
|                           |  |              |       |                             |      |                           |       |      |      |      |       |      |      |   |       |     
|Income before income taxes |  |              | 2.6   | %                           |      |                           | 3.4   | %    |      |      | 2.7   | %    |      |   | 3.4   | %   
|                          
|                          
|                          
|                          
|Provision for income taxes |  |              | 0.8   | %                           |      |                           | 1.2   | %    |      |      | 0.9   | %    |      |   | 1.2   | %   
|                           |  |              |       |                             |      |                           |       |      |      |      |       |      |      |   |       |     
|Net income                 |  |              | 1.8   | %                           |      |                           | 2.2   | %    |      |      | 1.8   | %    |      |   | 2.2   | %   
|                           |  |              |       |                             |      |                           |       |      |      |      |       |      |      |   |       |     

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

|              |              |                             |      |                           |      |   |      |     |      |   |     |       |  |   |     |       | 
|------------- | ------------ | --------------------------- | ---- | ------------------------- | ---- | - | ---- | --- | ---- | - | --- | ----- |  | - | --- | ----- | 
|(In millions) |              | Three months ended June 30, |      | Six months ended June 30,
|              |              |                             | 2000 |                           | 1999 |   | 2000 |     | 1999
|              |              |                             |      |                           |      |   |      |     |     
|On-Highway    |              | $                           | 323  |                           |      | $ | 380  |     |      | $ | 658 |       |  | $ | 759 |      
|             
|             
|             
|             
|Off-Road      |              |                             | 170  |                           |      |   | 159  |     |      |   | 326 |       |  |   | 320 |      
|             
|             
|             
|             
|Automotive    |              |                             | 45   |                           |      |   | 46   |     |      |   | 90  |       |  |   | 98  |      
|              |              |                             |      |                           |      |   |      |     |      |   |     |       |  |   |     |      
|              | Net revenues |                             | $    | 538                       |      |   | $    | 585 |      |   | $   | 1,074 |  |   | $   | 1,177 | 
|              |              |                             |      |                           |      |   |      |     |      |   |     |       |  |   |     |      

Three and Six Months Ended June 30, 2000 Compared to the Three and Six Months
Ended June 30, 1999

Net Revenues.Net revenues for the three and six months ended June 30,
2000 were $538.0 million and $1,074.2 million compared to $585.2 million and
$1,176.7 million for the comparable periods in 1999. Total engine shipments
for the three and six months ended June 30, 2000 were approximately 40,500 and
76,900 units, respectively, compared to 42,300 and 84,700 for the same periods
in 1999. Revenues from parts and remanufactured products decreased 2% to
$110.2 million for the three months ended June 30, 2000 compared to the three
months ended June 30, 1999, but increased 5% to $234.0 million for the six
month period ended June 30, 2000 compared to the same period in 1999. The
increase is the result of various marketing programs which have produced
continued strong demand for the Companys four-cycle engine components.
      Net revenues in the on-highway market were $323 million in the second
quarter and $658 million year to date compared to $380 million and $759 million
for the same periods in 1999. Shipments of the companys Series 60 engine for
on-highway truck applications declined 17% for the quarter ended June 30, 2000
compared to the three months ended June 30, 1999 in conjunction with the
anticipated reduction in OEM production within the North American heavy-duty truck
market. Shipments to the Companys coach customers continue to show steady
improvement.

9



---



Detroit Diesel Corporation Form 10-Q (continued)

Net revenues in the off-road market were $170 million in the second
quarter compared to $159 million in the second quarter 1999 and $326 million
for the six months ended June 30, 2000 compared to $320 million for the
comparable period in 1999. Two-cycle engine unit volumes declined 26% from the
second quarter 1999 as a result of the PowerEvolution program. This decline
was off-set by increased demand for the Companys Series 2000, Series 4000 and
Series 60 engines for off-road applications.
      Net revenues in the automotive market were $45 million and $90 million for
the three and six month period ended June 30, 2000 compared to $46 million and
$98 million for the comparable periods in 1999. Shipments in the second
quarter were affected by the timing of customer requirements.

Gross Profit.Gross profit for the three and six months ended June 30,
2000 was $127.8 million and $261.5 million, respectively, a decrease of $12.3
million and $17.8 million, from the same periods in 1999. Gross margin
increased 0.6 percentage points over the six months ended June 30, 1999 to
24.3%. The increase in gross margin on a year to date basis is attributed to a
more favorable sales mix of the Companys heavy-duty engines, increased sales
of service parts and remanufactured products, and material cost reductions
associated with the Companys CCVI program.

Selling and Administrative Expenses.Selling and administrative expenses
for the three and six months ended June 30, 2000 were $85.5 million and $174.6
million compared to $90.0 million and $182.4 million, respectively, for the
corresponding period in 1999. The decrease in selling and administrative
expenses relates to lower variable costs, primarily warranty, as a result of
decreased unit volumes.

Research and Development Expenses.Research and development expenses for
the three and six months ended June 30, 2000 were $25.5 million and $52.1
million, compared to $27.7 and $52.3 for the same periods in 1999. Relatively
consistent expenditures include development of the next generation of the
Series 60 on-highway truck engine and spending for the expanded application of
off-road products.

Interest Expense.Interest expense for the three and six month period
ending June 30, 2000 was $2.8 million and $5.0 million, compared to $2.1
million and $4.4 million for the same periods in 1999. The increase is due to
higher average debt balances during the current year, mainly as a result of
higher working capital requirements and the Companys stock repurchase program.

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.
During the first six months, the Company's
effective tax rate was 33 1/2%, resulting from realization of certain foreign income tax benefits.

Net Income.Net income for the three and six months ended June 30, 2000
was $9.7 million and $19.8 million, respectively. This represents a decrease
of 24.2% and 21.7%, respectively, over the same periods in 1999. Net income
for the three and six months ended June 30, 1999 was $12.8 million and $25.3
million, respectively.

10



---



Detroit Diesel Corporation Form 10-Q (continued)

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. In May 2000, the Company entered into a new $500
million unsecured revolving credit facility. The $500 million facility is
comprised of a five-year $300 million commitment and a 364-day $200 million
commitment. Borrowings under these agreements bear interest at LIBOR-based
rated, prime-based rates and rates determined by competitive bidding among
participating banks.
      The Companys subsidiary, VM Motori S.p.A. (VM), has $95.2 million in
unsecured lines of credit with several banks. Included in this amount is $7.4
million in the form of a long-term credit facility. At June 30, 2000, VM had
available credit of approximately $59.6 million under lines of credit.
      Cash used in operations for the six months ended June 30, 2000 was
approximately $5.4 million. Operating cash flows were affected by increased
working capital requirements and the Companys stock repurchase program.
Capital expenditures were $23.6 million for the first six months of 2000
and were used to upgrade existing machinery, equipment and tooling.
      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 for the Companys foreign subsidiaries reporting in local
currencies and as a component of income for its foreign subsidiaries using the
US Dollar as the functional currency. Changes in the value of the Italian
Lira, the Singapore Dollar and the Brazilian Real impact the Companys
translation adjustments. Changes in the value of the Mexican Peso could affect
the Companys results of operations and financial position. Additionally, the
Company has recorded liabilities approximating 19.7 million in Deutschmarks
(DM) and 14.5 million in Euros as of June 30, 2000. Changes in the value of
the Euro 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 flows from operations, supplemented, if necessary, by borrowings under its
$500 million primary revolving credit facility.

Prospective Information

Based upon recent information, the Company anticipates reduced demand in
the on-highway heavy-duty truck market throughout 2000. Current information
suggests a reduction of approximately 25% to 30% in the production of North
American on-highway heavy-duty trucks from the record levels achieved in 1999.
The Company anticipates third quarter production to be substantially below
prior year levels, and in light of these expected production declines, has
increased the emphasis on cost reduction to remain competitive and enhance
profitability.
      
The Company has undertaken cost reduction programs, such as CCVI, to help
offset the effect of the reduced demand in the truck market. Additionally,
Series 2000 and Series 4000 engine shipments are expected to continue to
increase. Improvement in the Companys after-market service parts and
remanufactured products business is also expected to be realized during 2000
and beyond. These actions are currently not expected to completely offset the
overall effect of the anticipated truck

11



---



Detroit Diesel Corporation Form 10-Q (continued)

market decline. The Company continues to pursue customers for its new
automotive offerings both in North America and in Europe.
      It is anticipated that the cash tender offer announced on July 20, 2000 by
DaimlerChrysler (DCX) to acquire the remaining 78.7% of the outstanding common
stock of Detroit Diesel that it does not currently own will be completed by the
fall of 2000. At that time, Detroit Diesel would be merged with a
subsidiary of DaimlerChrysler and become a wholly-owned subsidiary of DCX.
Detroit Diesels Board of Directors has approved the tender offer and the
agreement.

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, 1999, which is on file with
the Securities and Exchange Commission.

12



---



Detroit Diesel Corporation Form 10-Q (continued)

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.

13



---



Detroit Diesel Corporation Form 10-Q (continued)

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                                                                   
|     
|Date: | August 11, 2000 |  |  | 
|     
|      |                 |  |  |  |  | By: /s/ R. E. Belts                                                                          
|      |                 |  | 
|      |                 |  |  |  |  | R. E. Belts                                                                                  
|     
|      |                 |  |  |  |  | Its:  Senior Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)

14



---



Detroit Diesel Corporation Form 10-Q (continued)

EXHIBIT INDEX

The following constitutes the exhibits to the Quarterly Report on Form
10-Q of the Company for the period ended June 30, 2000:

|              |  |                         |  |                       
|------------- |  | ----------------------- |  | ----------------------
|ExhibitNumber |  | Exhibit                 |  | Sequential
Page Number
|27            |  | Financial Data Schedule |  | 16                    

15