AGCO's now in the engine business: acquisition of Valtra tractors brings Sisu Diesel into the fold; not all AGCO models to be powered by Sisu - industry news

Diesel Progress North American Edition, Jan, 2004 by Mike Osenga

Another OEM going into the engine business?

Following on the heels of SAME-Deutz, JCB's engine announcement, rumors of Terex looking at Daewoo's diesel engines and DaimlerChrysler's vertical integration announcement, AGCO Corp., one of the world's major producers of agricultural equipment now owns a diesel engine manufacturer.

As part of its September 2003 acquisition of Finnish tractor manufacturer Valtra Corp. from Kone Corp., AGCO also purchased Kone's diesel engine division which manufactures engines, sold under the Sisu Diesel brand name, from 50 hp to 450 hp primarily for off-road applications. As this is written, the entire acquisition is still being reviewed by regulatory authorities so complete details are not yet available.

But assuming die deal is approved, is AGCO now in the diesel engine business as well?

Yep.

"The engines certainly piqued our interest," said Robert J. Ratcliff, chairman, president & CEO of AGCO Corp., Duluth, Ga. "We know the engines. We use almost 1200 of them in tractors and combines annually in our Massey line. But engines were not the decision maker. Our initial interest was obviously tractors.

"Buying an engine manufacturer was not something we would have gone out of our way to get into," Ratliff added, "but once it was part of the equation, you can't help hut accept that it gives us some new opportunities we hadn't thought about in the past."

This was, given AGCO's position in the world markets, a tractor deal first and foremost. "Our initial interest when we started looking at Valtra was obviously tractors," Ratliff said. "There am a number of features about the tractors that intrigue us and certainly are compatible with our strategic direction.

"In the Nordic markets for example, they have about 30 percent market share and they have about 20 percent market share in Brazil. So in those two major markets they are getting significant share.

"Maybe the most exciting part was their efficiency in building product, and that extends to engines as well," Ratliff said. "They have an overwhelming amount of automation, they have an extremely high rate of inventory turn-over of work in process and also build only to order. They have a strategic system for producing product that we want to take to our other factories. I've never seen anything like it.

"Those were the things that attracted us. Plus, as a tractor company and again engines get put into this equation, on a consolidated basis, our research said they are the most profitable farm equipment manufacturer in the world. So from a profit point-of-view that's a good addition."

Valtra, which had revenues for the 12 months ended June 30 of approximately $900 million, has its primary tractor production facility in Suolahti, Finland. In September, the company built its 500,000th modal since Valtra, or Valmet as it was known then, began building tractors 52 years ago at a facility in Tourula, Finland.

In 1969, the tractor factory moved to Suolahti and production is now about 10,000 tractors a year. Suolahti manufactures seven of the eight Valtra tractor ranges.

The seven tractor lines built in Suolahti range from 52 to 280 hp. The smallest line, the 3000 series, use Deutz 912 and 913 diesels, while all of the other models are powered by three-, four- or six-cylinder Sisu diesels.

In 1960, the then Valmet established a plant in Brazil. The facility in Mogi das Cruzes now covers over 630,000 sq.ft., has built over 300,000 tractors, and currently has an annual production of about 9000.

The five tractor ranges built in Brazil range from 61 to 170 hp and use a combination of engines built by MWM Brasil and Sisu Diesels. Sisu Diesel also assembles engines at the tractor plant in Mogi das Crazes.

Sisu Diesel built 27,700 engines, a record level, in 2002. Its facility in Linnavuori, Finland, built 23,700 engines, while Valtra do Brasil, the assembly operations in Brazil, built an additional 4000. Direct exports represent over 50 percent of sales. Further, Indian tractor manufacturer Eicher Europower is manufacturing Eicher Europower engines under license from Sisu Diesel in Alwar, India.

The engines are sold into industrial and farming tractors, agricultural equipment, forestry, material handling and construction equipment, as well as special and military vehicles. Sisu Diesel also has its own line of generating sets and marble propulsion engines.

In tractor sales outside of Valtra, Sisu Diesel engines are used in the Case CVX and the Steyr CVT models from CNH. These tractor models have been updated to meet Stage 2/Tier 2 emission requirements with the electronically controlled Sisu Diesel 66 ETA engines. Five ratings between 137 and 192 hp/2100 rpm (ISO 14396) are available. Massey Ferguson's largest 8300 series tractors use Sisu Diesel engines with ratings of 190, 214, 231, 261 and 288 hp at 2200 rpm. In addition, Sisu Diesel engines are used in AGCO Cat Challenger wheeled tractors.

In combine harvesters, Sisu Diesel sells to Sampo-Rosenlew, all Massey Ferguson's manufactured in Europe, as well as the LAN 64 260 hp model manufactured in Ukraine.