##### Table of Contents








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, 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



313-592-5000



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.



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 July 30, 1999 | 

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



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TABLE OF CONTENTS



|                                                                                  |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549          
|FORM 10-Q                                                                        
|Commission File No. 1-12394                                                      
|DETROIT DIESEL CORPORATION (Exact name of registrant as specified in its charter)
|TABLE OF CONTENTS                                                                
|PART I -- FINANCIAL INFORMATION                                                  



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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, 1999 and 1998 |    |    | 3 | 
|                              
|                              
|                              
|                              
|                               |                                                                                                | Consolidated Balance Sheets at June 30, 1999 and
	December 31, 1998                          |    |    | 4 | 
|                              
|                              
|                              
|                              
|                               |                                                                                                | Consolidated Statements of Cash Flows for the Six months ended
	June 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  |  
|                              
|                              
|                              
|                              
|PART II  OTHER INFORMATION    |                                                                                                |                                                                                              |    |   
|                              
|                              
|                              
|                              
|                               | Item 6. Exhibits and Reports on Form 8-K                                                       |                                                                                              |    | 14 |  
|                              
|                              
|                              
|                              
|SIGNATURE                      |                                                                                                |                                                                                              | 15 |   
|                              
|                              
|                              
|                              
|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 INCOME


(In millions, except per share amounts)


(Unaudited)


|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |       | 
|---------------------------- | ------------ | --------------------------- | ----- | ------------------------- |  | ---- | ----- | ----- |  | - | ------- | ----- |  | - | ------- | ----- | 
|                             |              |                             |       |                          
|                             |              | Three months ended June 30, |       | Six months ended June 30,
|                             |              | 1999                        |       | 1998                      |  | 1999 |       | 1998 
|                             |              |                             |       |                           |  |      |       |      
|Net revenues                 |              | $                           | 585.2 |                           |  | $    | 556.3 |       |  | $ | 1,176.7 |       |  | $ | 1,145.1 |      
|                            
|                            
|                            
|                            
|Cost of sales                |              |                             | 445.1 |                           |  |      | 425.3 |       |  |   | 897.4   |       |  |   | 879.7   |      
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|                             | Gross profit |                             |       | 140.1                     |  |      |       | 131.0 |  |   |         | 279.3 |  |   |         | 265.4 | 
|                            
|                            
|                            
|                            
|Expenses:                    |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|                            
|                            
|                            
|                            
|Selling and administrative   |              |                             | 90.0  |                           |  |      | 88.0  |       |  |   | 182.4   |       |  |   | 179.2   |      
|                            
|                            
|                            
|                            
|Research and development     |              |                             | 27.7  |                           |  |      | 23.7  |       |  |   | 52.3    |       |  |   | 48.2    |      
|                            
|                            
|                            
|                            
|Interest                     |              |                             | 2.1   |                           |  |      | 2.7   |       |  |   | 4.4     |       |  |   | 6.0     |      
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|                             | Total        |                             |       | 119.8                     |  |      |       | 114.4 |  |   |         | 239.1 |  |   |         | 233.4 | 
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|Income before income taxes   |              |                             | 20.3  |                           |  |      | 16.6  |       |  |   | 40.2    |       |  |   | 32.0    |      
|                            
|                            
|                            
|                            
|Provision for income taxes   |              |                             | 7.5   |                           |  |      | 6.1   |       |  |   | 14.9    |       |  |   | 11.8    |      
|                            
|                            
|                            
|                            
|Minority interests           |              |                             |      |                           |  |      | 0.1   |       |  |   |        |       |  |   | 0.1     |      
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|Net income                   |              | $                           | 12.8  |                           |  | $    | 10.4  |       |  | $ | 25.3    |       |  | $ | 20.1    |      
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|Basic net income per share   |              | $                           | .52   |                           |  | $    | .42   |       |  | $ | 1.03    |       |  | $ | .81     |      
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      
|Diluted net income per share |              | $                           | .52   |                           |  | $    | .42   |       |  | $ | 1.02    |       |  | $ | .81     |      
|                             |              |                             |       |                           |  |      |       |       |  |   |         |       |  |   |         |      

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)


|                                     |                                                             |                                                                |   |              |         |  |   |        |         | 
|------------------------------------ | ----------------------------------------------------------- | -------------------------------------------------------------- | - | ------------ | ------- |  | - | ------ | ------- | 
|                                     |                                                             | June 30,                                                       |   | December 31,
|                                     |                                                             | 1999                                                           |   | 1998        
|                                     |                                                             |                                                                |   |             
|                                     |                                                             | (Unaudited)                                                    |   |             
|                                    
|                                    
|                                    
|                                    
|ASSETS                               |                                                             |                                                                |   |              |         |  |   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Current Assets:                                             |                                                                |   |              |         |  |   |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Cash                                                        |                                                                | $ | 4.1          |         |  | $ | 3.2    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts and notes receivable, net                          |                                                                |   | 360.0        |         |  |   | 313.3  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                 |                                                                |   | 342.3        |         |  |   | 344.2  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses, deferred charges and other current assets |                                                                |   | 14.8         |         |  |   | 14.9   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax assets                                         |                                                                |   | 64.5         |         |  |   | 61.8   |        
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Total Current Assets                                           |   |              | 785.7   |  |   |        | 737.4   | 
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     | Property, Plant and Equipment:                              |                                                                |   |              |         |  |   |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Land and buildings                                          |                                                                |   | 83.0         |         |  |   | 85.2   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Machinery, equipment and tooling                            |                                                                |   | 422.1        |         |  |   | 415.8  |        
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Total Property, Plant and Equipment                            |   |              | 505.1   |  |   |        | 501.0   | 
|                                    
|                                    
|                                    
|                                    
|                                     | Less: accumulated depreciation                              |                                                                |   | (209.0       | )       |  |   | (191.6 | )      
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Net Property, Plant and Equipment                              |   |              | 296.1   |  |   |        | 309.4   | 
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     | Deferred Tax Assets                                         |                                                                |   | 13.6         |         |  |   | 15.1   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Intangible Assets, net                                      |                                                                |   | 133.5        |         |  |   | 144.7  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other Assets                                                |                                                                |   | 45.2         |         |  |   | 34.1   |        
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Total Assets                                                   |   | $            | 1,274.1 |  |   | $      | 1,240.7 | 
|                                     |                                                             |                                                                |   |              |         |  |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                             |                                                                |   |              |         |  |   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Current Liabilities:                                        |                                                                |   |              |         |  |   |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Notes payable                                               |                                                                | $ | 30.7         |         |  | $ | 38.3   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                            |                                                                |   | 305.7        |         |  |   | 278.2  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses                                            |                                                                |   | 239.1        |         |  |   | 210.3  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt and capital leases        |                                                                |   | 3.2          |         |  |   | 4.1    |        
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Total Current Liabilities                                      |   |              | 578.7   |  |   |        | 530.9   | 
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     | Long-Term Debt and Capital Leases                           |                                                                |   | 44.6         |         |  |   | 62.6   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other Liabilities                                           |                                                                |   | 232.3        |         |  |   | 240.5  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Tax Liabilities                                    |                                                                |   | 25.6         |         |  |   | 28.9   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Income                                             |                                                                |   | 5.2          |         |  |   | 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                                  |                                                                |   | 224.2        |         |  |   | 224.2  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                           |                                                                |   | 185.9        |         |  |   | 166.8  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated Other Comprehensive Income:                     |                                                                |   |              |         |  |   |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional minimum pension adjustment                       |                                                                |   | (9.7         | )       |  |   | (9.7   | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Currency translation adjustment                             |                                                                |   | (12.9        | )       |  |   | (9.2   | )      
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Total Stockholders Equity                                     |   |              | 387.7   |  |   |        | 372.3   | 
|                                     |                                                             |                                                                |   |              |         |  |   |       
|                                     |                                                             | Total Liabilities and Stockholders Equity                     |   | $            | 1,274.1 |  |   | $      | 1,240.7 | 
|                                     |                                                             |                                                                |   |              |         |  |   |       

See accompanying Notes to Unaudited Consolidated Financial
Statements.

4



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##### Table of Contents



DETROIT DIESEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |       |      |       |  
|---------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------------------- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | -
|                                                                                   |                                                            |                                                                
|                                                                                   |                                                            | Six months ended                                               
|                                                                                   |                                                            | June 30,                                                       
|                                                                                   |                                                            |                                                                
|                                                                                   |                                                            | 1999                                                            |                                                             | 1998 
|                                                                                   |                                                            |                                                                 |                                                             |      
|CASH FLOWS FROM OPERATING ACTIVITIES:                                              |                                                            |                                                                 |                                                             |       |      |       |       |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net income                                                                         |                                                            | $                                                               | 25.3                                                        |       |      | $     | 20.1  |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Adjustments to reconcile net income to net cash
	Provided by operating activities: |                                                            |                                                                 |                                                             |       |      |       |       |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            | Depreciation and amortization                                   |                                                             |       | 26.4 |       |       |       | 23.4 |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            | Changes in assets and liabilities which provided (used) 
	cash: |                                                             |       |      |       |       |       |      |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Accounts and notes receivable                               |       |      | (55.4 | )     |       |      | (24.7 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Inventories                                                 |       |      | (4.6  | )     |       |      | (14.7 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Prepaid expenses, deferred charges and other current assets |       |      | (0.8  | )     |       |      | (1.4  | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Deferred taxes                                              |       |      | (2.4  | )     |       |      | (.6   | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Accounts payable                                            |       |      | 39.5  |       |       |      | 14.1  |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Accrued expenses and other liabilities                      |       |      | 22.8  |       |       |      | 36.2  |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            |                                                                 | Intangible and other assets                                 |       |      | (2.2  | )     |       |      | (7.0  | )
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|Net Cash Provided By Operating Activities                                          |                                                            |                                                                 | 48.6                                                        |       |      |       | 45.4  |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                              |                                                            |                                                                 |                                                             |       |      |       |       |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Acquisition of property, plant and equipment               |                                                                 |                                                             | (23.4 | )    |       |       | (20.1 | )   
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from sale of property, plant and equipment        |                                                                 |                                                             | 1.8   |      |       |       | 1.5   |     
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Acquisition of subsidiaries, net of dispositions           |                                                                 |                                                             | (9.3  | )    |       |       | (13.1 | )   
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|Net Cash Used In Investing Activities                                              |                                                            |                                                                 | (30.9                                                       | )     |      |       | (31.7 | )    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                              |                                                            |                                                                 |                                                             |       |      |       |       |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net (payments on) notes payable                            |                                                                 |                                                             | (4.1  | )    |       |       | (23.2 | )   
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net proceeds from (payments on) other long-term borrowings |                                                                 |                                                             | (10.3 | )    |       |       | 8.5   |     
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Payment of dividends                                       |                                                                 |                                                             | (3.1  | )    |       |       |       |     
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Exercise of stock options                                  |                                                                 |                                                             |      |      |       |       | .1    |     
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|Net Cash Used In Financing Activities                                              |                                                            |                                                                 | (17.5                                                       | )     |      |       | (14.6 | )    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Effect of Exchange Rate Changes on Cash                                            |                                                            |                                                                 | 0.7                                                         |       |      |       | .2    |      
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|Net Increase (Decrease) In Cash                                                    |                                                            |                                                                 | 0.9                                                         |       |      |       | (0.7  | )    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cash at the Beginning of the Period                                                |                                                            |                                                                 | 3.2                                                         |       |      |       | 3.2   |      
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|Cash at the End of the Period                                                      |                                                            | $                                                               | 4.1                                                         |       |      | $     | 2.5   |      
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                 |                                                            |                                                                 |                                                             |       |      |       |       |      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash paid during the period for:                           |                                                                 |                                                             |       |      |       |       |       |     
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                            | Interest                                                        |                                                             | $     | 4.2  |       |       | $     | 6.4  |      
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      
|                                                                                   |                                                            | Income taxes                                                    |                                                             | $     | 14.7 |       |       | $     | 8.6  |      
|                                                                                   |                                                            |                                                                 |                                                             |       |      |       |       |      

See accompanying Notes to Unaudited Consolidated Financial
Statements.

5



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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
June 30, 1999 and December 31, 1998 and the results of
its operations for the three and six-month periods ended
June 30, 1999 and 1998 and cash flows for the six-month
periods ended June 30, 1999 and 1998.



Note 2  Inventories.

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

|               |       |             |       |              |  |   |       |       | 
|-------------- | ----- | ----------- | ----- | ------------ |  | - | ----- | ----- | 
|               |       | June 30,    |       | December 31,
|               |       | 1999        |       | 1998        
|               |       |             |       |             
|               |       | (Unaudited) |       |             
|(In millions)  |       |             |       |              |  |   |       |      
|              
|              
|              
|              
|Productive     |       | $           | 181.3 |              |  | $ | 187.4 |      
|              
|              
|              
|              
|Parts          |       |             | 153.7 |              |  |   | 150.5 |      
|              
|              
|              
|              
|Non-productive |       |             | 7.3   |              |  |   | 6.3   |      
|               |       |             |       |              |  |   |       |      
|               | Total |             | $     | 342.3        |  |   | $     | 344.2 | 
|               |       |             |       |              |  |   |       |      

The components of productive inventory are:

|                 |  |  |     |  |  |  |     | 
|---------------- |  |  | --- |  |  |  | --- | 
|                
|                
|                
|                
|Raw materials    |  |  | 57% |  |  |  | 58% | 
|                
|                
|                
|                
|Work in process  |  |  | 24% |  |  |  | 23% | 
|                
|                
|                
|                
|Finished product |  |  | 19% |  |  |  | 19% | 

Note 3  Intangible Assets.

Intangible assets include goodwill of $74.7 million and
$82.5 million at June 30, 1999 and December 31,
1998, respectively. Accumulated amortization of intangible assets
 as of June 30, 1999 and December 31, 1998 was
$30.5 million and $26.4 million, respectively.

Note 4  Net Income Per Share.

Basic net income per share represents net income available to
common stockholders divided by the weighted average number of
common shares outstanding during the period. For the three and
six months ended June 30, 1999, the weighted average number
of shares outstanding were 24,705,000 and 24,704,000,
respectively. The weighted average number of shares outstanding
was 24,702,000 for the three and six months ended June 30,
1998.

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##### Table of Contents



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 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 six months ended
June 30, 1999 was 135,000 and 101,000 shares, respectively.
The dilutive effect of the Companys incentive stock options
 for the three and six months ended June 30, 1998 was
103,000 and 83,000 shares, respectively.

Note 5  Commitments and Contingencies.

The Company is contingently liable for letters of credit and
guarantees to banks aggregating $49.1 million at
June 30, 1999.

Note 6  Comprehensive Income.

The reconciliation of net income to comprehensive income for the
three and six months ended June 30, are as follows:

|                                |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      |  
|------------------------------- |  | ------------ | ---- | ---------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                |  |              |      |           
|                                |  | Three months |      | Six months
|                                |  | ended        |      | ended     
|                                |  | 1999         |      | 1998       |  | 1999 |      | 1998
|                                |  |              |      |            |  |      |      |     
|(In millions)                   |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      |  
|                               
|                               
|                               
|                               
|Net income                      |  | $            | 12.8 |            |  | $    | 10.4 |      |  | $ | 25.3 |   |  | $ | 20.1 |  
|                               
|                               
|                               
|                               
|Currency translation adjustment |  |              | (1.1 | )          |  |      | (0.6 | )    |  |   | (3.7 | ) |  |   | (1.5 | )
|                                |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      |  
|Comprehensive income            |  | $            | 11.7 |            |  | $    | 9.8  |      |  | $ | 21.6 |   |  | $ | 18.6 |  
|                                |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      |  

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 second quarter 1999 the Company declared a quarterly
dividend of $.125 per share outstanding which was equivalent to
$3.1 million. The dividend was paid during July of 1999.

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##### Table of Contents





|        |                                     
|------- | ------------------------------------
|Item 2. | Managements Discussion and Analysis

of Financial Condition and Results of Operations


Overview

Detroit Diesel Corporation reported record quarterly net income
of $12.8 million and earnings per share of $0.52, an
increase of 24% over second quarter 1998 net income of
$10.4 million or $0.42 per share. Revenues for the period
were $585.2 million compared to $556.3 million during
the second quarter 1998. Gross margin was 23.9% in the second
quarter 1999, an increase of 0.4 percentage points over the
first quarter 1999. The Company also declared its second
consecutive quarterly dividend in the amount of $0.125 per share.
 For the six months ended June 30, 1999, total revenues were
 $1.2 billion, a 3% increase over the first six months of
1998. Year to date net income increased 26% over the same period
last year to a record $25.3 million, or $1.03 per common
share.

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,
|                           |              | 1999                        |       | 1998                      |   | 1999 |       | 1998
|                           |              |                             |       |                           |   |      |       |     
|Net revenues               |              |                             | 100.0 | %                         |   |      | 100.0 | %    |   |  | 100.0 | %    |   |  | 100.0 | %   
|                          
|                          
|                          
|                          
|Cost of sales              |              |                             | 76.1  | %                         |   |      | 76.5  | %    |   |  | 76.3  | %    |   |  | 76.8  | %   
|                           |              |                             |       |                           |   |      |       |      |   |  |       |      |   |  |       |     
|                           | Gross profit |                             |       | 23.9                      | % |      |       | 23.5 | % |  |       | 23.7 | % |  |       | 23.2 | %
|                          
|                          
|                          
|                          
|Expenses:                  |              |                             |       |                           |   |      |       |      |   |  |       |      |   |  |       |     
|                          
|                          
|                          
|                          
|Selling and administrative |              |                             | 15.4  | %                         |   |      | 15.8  | %    |   |  | 15.5  | %    |   |  | 15.6  | %   
|                          
|                          
|                          
|                          
|Research and development   |              |                             | 4.7   | %                         |   |      | 4.3   | %    |   |  | 4.4   | %    |   |  | 4.2   | %   
|                          
|                          
|                          
|                          
|Interest                   |              |                             | 0.4   | %                         |   |      | 0.5   | %    |   |  | 0.4   | %    |   |  | 0.5   | %   
|                           |              |                             |       |                           |   |      |       |      |   |  |       |      |   |  |       |     
|                           | Total        |                             |       | 20.5                      | % |      |       | 20.6 | % |  |       | 20.3 | % |  |       | 20.3 | %
|                           |              |                             |       |                           |   |      |       |      |   |  |       |      |   |  |       |     
|Income before income taxes |              |                             | 3.4   | %                         |   |      | 2.9   | %    |   |  | 3.4   | %    |   |  | 2.9   | %   
|                          
|                          
|                          
|                          
|Provision for income taxes |              |                             | 1.2   | %                         |   |      | 1.0   | %    |   |  | 1.2   | %    |   |  | 1.0   | %   
|                          
|                          
|                          
|                          
|Minority interests         |              |                             |      |                           |   |      |      |      |   |  |      |      |   |  |      |     
|                           |              |                             |       |                           |   |      |       |      |   |  |       |      |   |  |       |     
|Net income                 |              |                             | 2.2   | %                         |   |      | 1.9   | %    |   |  | 2.2   | %    |   |  | 1.9   | %   
|                           |              |                             |       |                           |   |      |       |      |   |  |       |      |   |  |       |     

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

|              |              |                             |     |                           |  |      |     |      |  |   |     |       |  |   |     |       | 
|------------- | ------------ | --------------------------- | --- | ------------------------- |  | ---- | --- | ---- |  | - | --- | ----- |  | - | --- | ----- | 
|              |              |                             |     |                          
|              |              | Three months ended June 30, |     | Six months ended June 30,
|              |              | 1999                        |     | 1998                      |  | 1999 |     | 1998
|              |              |                             |     |                           |  |      |     |     
|(In millions) |              |                             |     |                           |  |      |     |      |  |   |     |       |  |   |     |      
|             
|             
|             
|             
|On-Highway    |              | $                           | 380 |                           |  | $    | 326 |      |  | $ | 759 |       |  | $ | 658 |      
|             
|             
|             
|             
|Off-Road      |              |                             | 159 |                           |  |      | 185 |      |  |   | 320 |       |  |   | 379 |      
|             
|             
|             
|             
|Automotive    |              |                             | 46  |                           |  |      | 45  |      |  |   | 98  |       |  |   | 108 |      
|              |              |                             |     |                           |  |      |     |      |  |   |     |       |  |   |     |      
|              | Net revenues |                             | $   | 585                       |  |      | $   | 556  |  |   | $   | 1,177 |  |   | $   | 1,145 | 
|              |              |                             |     |                           |  |      |     |      |  |   |     |       |  |   |     |      

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##### Table of Contents



Three and Six Months Ended June 30, 1999 Compared to the
Three and Six Months Ended June 30, 1998

Net Revenues.Net revenues for the three and
six months ended June 30, 1999 were $585.2 and
$1,176.7 million compared to $556.3 and
$1,145.1 million for the comparable periods in 1998. Total
heavy-duty engine shipments for the three and six months ended
June 30, 1999 were approximately 24,500 and 50,400 units,
respectively, and represent an increase of 10% and 12% over the
comparable periods in 1998. The increase was the result of strong
 demand for the Series 60 engine, as unit volumes increased
19% for the six months ended June 30, 1999 over the same
period in 1998.

Total unit shipments for the three and six months ended
June 30, 1999 increased approximately 11% and 4%,
respectively, to 42,300 and 84,700. 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. The Company is also introducing
additional Series 60 products including a high horsepower
model as well as a Series 60 marine application, which was
introduced earlier this year and is expected to be in full
production by the beginning of 2000.

Net revenues in the on-highway market increased 17% and 15%,
respectively, for the three and six months ended June 30,
1999 compared to the same periods in 1998. Strong revenues in
this area reflect consistent demand for the Companys
Series 60 engine in on-highway applications and reflect the
strength of the North American on-highway heavy-duty truck market
 which is expected to continue into 2000. Net revenues in the
off-road market were $159 million and $320 million, for the
three and six months ended June 30, 1999, respectively, compared
to revenues of $185 million and $379 million for the three
and six months ended June 30, 1998, respectively. The
decrease in this market was the result of the planned completion
of the majority of the Companys 2-cycle production under
the PowerEvolution program partially offset by increases in
4-cycle offerings to this market. The softness in the market also
 reflects continued weakness in the mining and energy sectors.
Automotive market revenues were essentially flat for the second
quarter 1999 compared to the same period in 1998. Year to date
revenues in the market were down slightly to $98 million
compared to $108 million for the same period in 1998. The
year to date decrease reflects the effect of the completion of a
major supply contract in early 1998.

Gross Profit.Gross profit for the three and
six months ended June 30, 1999 was $140.1 million and
$279.3 million, respectively, an increase of $9.1 million
and $13.9 million, over the same periods in 1998. Gross
margin increased to 23.7%, up 0.5 percentage points over the
 six months ended June 30, 1998. The increase in gross
margin is attributed to a favorable sales mix of the
Companys heavy-duty engines as a result of the
PowerEvolution program combined with the Companys cost
reduction efforts.

Selling and Administrative Expenses.Selling
and administrative expenses for the three months ended
June 30, 1999 were $90.0 million or 15.4% of net
revenues, compared to $88.0 million or 15.8% of net revenues
 in 1998. The slight increase in selling and administrative
expenses relates to the increases in sales volumes for the
Companys heavy-duty engine products offset by the
Companys focus on controlling expenses. Selling and
administrative expenses for the six months ended June 30,
1999 were $182.4 million or 15.5% of net revenues compared
to $179.2 million or 15.6% of net revenues for the same
period in 1998.

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##### Table of Contents



Research and Development Expenses.Research
and development expenses have increased for the three and six
months ended June 30, 1999 to $27.7 million and
$52.3 million, respectively. Increased spending is the
result of several new projects for the off-road and automotive
markets as well as on-going work related to emissions
development.

Interest Expense.Interest expense decreased
$0.6 million and $1.6 million, respectively, for the three
and six-month periods ending June 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%.

Net Income.Net income for the three and six
months ended June 30, 1999 was $12.8 million and
$25.3 million, respectively. This represents an increase of
24% and 26% respectively over the same periods in 1998. Net
income for the three and six months ended June 30, 1998 was
$10.4 million and $20.1 million, respectively.

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 $295 million was available as of
June 30, 1999. Additionally, the Companys subsidiary
in Italy, VM Motori S.p.A. (VM), has
$99.0 million in unsecured, short-term lines of credit with
several banks, of which approximately $49.4 million was
available at June 30, 1999.

Cash provided by operations for the six months ended
June 30, 1999 was approximately $48.6 million. Capital
expenditures were $23.4 million for the first six months of
1999 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.
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 33.1 million in Deutschmarks (DM)
as of June 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.

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##### Table of Contents



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.

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 this 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,
either as designed or with available upgrades. 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 are being targeted in this review. As
 part of this evaluation, the Company has sent out Year 2000
questionnaires and will also visit certain supplier and
distributor sites. Preliminary results indicate a range of Year
2000 activity by these companies, a small number of which have
been designated for further review. The results of the full
evaluation are not yet complete.

Costs to Address the Year 2000 Issue

The costs associated with Year 2000 compliance primarily consists
 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.

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##### Table of Contents



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, 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.

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.

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##### Table of Contents



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, combined with
moderate overall revenue growth. Cost reduction and operating
performance enhancement programs such as Continuous Customer
Value Improvement (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 automotive diesel engine applications for passenger
car, sport utility vehicle and smaller commercial applications
including the 3.0 liter V-6 VECTOR and the 4.0 liter
V-6 DELTA. Additionally, shipments of the Series 2000 and
Series 4000 engines in off-road markets are expected to
increase. The Company will also continue to pursue merger and
acquisition targets 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.

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|                     |  | DETROIT DIESEL CORPORATION                                                                     
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|Date: August 4, 1999 |  | By: /s/ R. E. BELTSR. E. Belts                                                                 
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|                     |  | Its:  Senior Vice President-Finance
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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 June 30,
1999:

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

16