Tuesday 30 December 2014

Eaton and the challenge of vertical integration

In the heady world of North American Class 8 trucks, for the likes of Cummins, Eaton and Meritor, life is a constant battle (in engines, transmissions and axles) against the forces of vertical integration that are steadily being imposed by European-controlled OEMs.

In a recent interview with Automotive World, Eaton’s new vice-president of technology Gerard DeVito, questioned about the growing trend towards vertical integration in the North American commercial vehicle industry, puts on a brave face.

DeVito asserts that the new competition faced by Eaton, as a truck and bus transmission manufacturer – and by independent engine maker Cummins – is ‘a motivational factor’ in improving their products and technologies.

More specifically he admits that “while it has put pressure on us, it has kept us smart on our game, motivating us to be ahead in terms of innovation.”

Two of the ‘big four’ heavy-duty truck builders in the US, that is Daimler-owned Freightliner and Volvo (which also controls Mack Trucks), both long-time OEM Eaton customers, are now increasingly promoting their own in-house gearboxes instead; although Paccar and Navistar remain predominantly ‘Eaton dependent’.

Many would argue that Eaton for years, as an independent supplier, had enjoyed an effective monopoly, albeit challenged in 2006 under US anti-trust laws by Detroit-based Meritor, acting in conjunction with its joint-venture partner from Germany, namely ZF. Last June, Eaton lost its case and allegedly paid a US$500 million fine to avoid a US$2.4 billion damage claim from ZF-Meritor, as reported by Automotive News. http://www.autonews.com/article/20140623/OEM10/140629960/eaton-to-pay-meritor-$500-million-avoid-trial-and-possible-$2.4

Automotive News noted: “Meritor Transmission and affiliate ZF Meritor LLC sued Cleveland-based Eaton in 2006 for violating antitrust laws. A jury ruled in 2009 that Eaton damaged Meritor and gained 90 percent of the market for truck transmissions by offering ‘exclusive dealing contract’ and unfair rebates.

Meritor could therefore, if it felt so inclined, go ahead with a marketing putsch to compete on heavy-duty gearbox supply, with what is a ZF-engineered product. It would be competing not only with Cleveland-based Eaton Corporation but with the vertical integrators Daimler and Volvo.  

But Meritor, if it decided to make a move of that kind, would be likely to focus its efforts on Paccar. Paccar’s Kenworth and Peterbilt trucks are already offered with diesel engines of European heritage, developed by its subsidiary DAF in the Netherlands. Significantly, all DAF heavy trucks are equipped with ZF transmissions.  (Significantly too, both DAF and MAN engines use compacted graphite iron (CGI) I6 cylinder blocks, though Volvo has yet to declare its production hand in this area). It would be logical to transfer that well-proven European engine-gearbox package across the Atlantic.

Paccar could justly claim that its own in-house engines and ZF gearboxes are as well matched as the wholly in-house integrated powertrains currently proclaimed loudly by Daimler and Volvo – and, crucially, by the Cummins-Eaton ‘partnership’, itself regarded in many quarters, not least by Daimler and Volvo, as a product of marketing desperation.

Observers will closely monitor the Cummins-Eaton ‘collaboration’ as, in the words of DeVito, the products are described as “more competitive”. The latest ‘package’ teams the Cummins Westport ISX12G – an engine powered by natural gas – and Eaton’s Fuller Advantage Series Automated manual transmission (AMT). Of these, DeVito claims “they meet the current demands of the industry and the ever increasing push for efficiency and reductions in emissions”.

Likewise, when considering fuel efficiency, Jodi Presswood, vice president and general manager, heavy-duty truck product line at Navistar International is reported as saying “the use of the Cummins-Eaton SmartAdvantage powertrain is essential”. Navistar has also announced that it will continue to update and improve the package.

Navistar, however, has not been without various ‘slip-ups’ on its own account in the area of vertical integration. The company dare not shout too loudly.

For, while MAN recognised that downstream SCR (selective catalytic reduction) would be essential in meeting Euro 5 and EPA 2010 requirements, for some reason known only to himself (perhaps) Navistar’s then chief executive officer turned his face against adopting SCR for his new CGI-based MaxxForce 11 and 13 engines that had their lineage linked to two similar-sized MAN engines.

This failure on the part of Daniel Ustian effectively led to the non-compliance of the MaxxForce 11 and 13 power units as well as and, just as important, the company’s diesel engine strategy being further shattered to the point that many pain-staking years of development lay on the cutting room floor.

This left the Lisle, Illinois business with no alternative but to go cap-in-hand to Cummins for SCR technology and compliant diesel power for its Class 8 trucks, simply to maintain its ability to push new trucks out of the factory doors and generate income.

As it was, Navistar had failed earlier to update its long-established mid-range 7.6- and 9.3-litre in-line, and 6.4-litre V8 engines to meet tougher emission regulations while remaining competitive on fuel efficiency and reliability.

The loss of the contract to supply the V8 PowerStroke engine to Ford added a further humiliating blow, leading eventually to the recently-announced closure of Navistar’s engine foundry in Indianapolis – a CGI foundry no less.

Many observers expect Navistar, no longer the diesel engine power house that it was, to make further moves away from in-house engine supply.  The 15 litre-Cummins ISX is already specified increasingly by heavy-duty International tractor customers, in favour of the 12.4-litre MaxxForce 13.  Cummins is undoubtedly keen to see its own equivalent-performance ISX12 on Navistar’s options list, with a view to its also becoming the standard offering

So Cummins’ latest link-up with Eaton could be the precursor for a further diminution of Navistar’s engine portfolio, providing the current chief executive officer, Troy Clarke, with the opportunity (should he need it) to possibly cut engine manufacture altogether and move further away from vertical integration

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