Changes Continue In Crawler Excavator Market

Diesel Progress North American Edition, May, 2001 by Mike Mercer

CNH Global, Kobe Steel and Kobelco form global excavator alliance; CNH ends agreement with Hitachi

There is probably no equipment segment more global than crawler excavators. Global in the sense that the workhorse machines are used everywhere and also in terms of their manufacture, as most machines sold are the result of alliances or joint ventures between companies on both sides of the world.

That market saw yet another twist in late March, as CNH Global, Kobe Steel Ltd. and Kobelco Construction Machinery announced an agreement to form a global alliance for the marketing, development and production of crawler excavators worldwide. As part of the same alliance, Kobelco will receive distribution rights for CNH construction equipment in Japan and the Asia Pacific region. At almost the same time, CNH Global and Hitachi agreed to end their regional European alliance covering excavators and other construction equipment.

"This alliance is a key component of CNH's strategy to expand the company's global presence in the construction equipment markets," said Paolo Monferino, CNH president and chief executive officer. "The objective is to develop a global excavator platform that will provide integrated product technology purchasing savings and quick competitive responses to changing market needs." At the time of this writing, the CNH-Kobe-Kobelco alliance had yet to receive the required approvals from relevant regulatory agencies.

The alliance with Kobelco will cover CNH Global brands outside of the Case network worldwide and the Link-Belt network in the Americas. These will continue to be supplied by Sumitomo Construction Machinery in line with the CNH multi-brand and multi-network strategy in which common components are used to develop highly differentiated and competitive products specifically designed to meet worldwide market requirements.

Under the terms of the agreement, CNH will purchase a 20 percent stake in Kobelco Construction Machinery from Kobe Steel. CNH has an option to increase that position up to 35 percent in the future. In North America, CNH will acquire a 65 percent interest in Kobelco America that will continue to manufacture and sell excavators under the Kobelco name.

In Europe, CNH and Hitachi reached a mutual agreement to end their European regional alliance as of June 30, 2002. At that time CNH will acquire the Hitachi stake in Fiat-Hitachi. CNH will however retain control of its European dealer distribution network. As part of the agreement, Hitachi is reportedly prevented from re-entry into the European construction equipment market again until January 2003.

According to CNH, its European alliance with Hitachi did not allow it the global reach required for its excavator business. The alliance was also preventing Hitachi, which specializes in excavators, from becoming a full-line supplier of construction equipment. CNH and Hitachi have agreed to a smooth transition, over a period extending through 2003, from the current products to the new products developed under the CNH-Kobelco global alliance.

Upon the exit of Hitachi, CNH's construction equipment business and Kobelco will form a new operation Fiat-Kobelco, which will combine Fiat-Hitachi and Kobelco Construction Machinery (Europe) B.V. CNH will control 75 percent of the new entity Kobelco will hold a 20 percent stake, with an option to increase it to 35 percent in the future. In Europe, the excavators will be sold under the new Fiat-Kobelco and Kobelco brands, independent of the Case network and brand, which will continue to be supported by Sumitomo Construction Machinery.

In the Asia Pacific region, Kobelco will acquire 100 percent of CNH's construction equipment operations, covering Australia, Asia and China. In addition, Kobelco will become an exclusive distributor of the Case and New Holland brands of construction equipment in Japan, Australia and Southeast Asia, expanding the product offering for the Kobelco networks in these markets and increasing sales of CNH products as well.

With the new partnership, CNH's construction equipment business and Kobelco will adopt a multi-brand, multi-network strategy that the companies say will enble them to achieve greater economies of scale, purchasing savings and manufacturing efficiencies as well as augment their distribution capabilities.

"This global alliance will strengthen our ability to serve customers in those regions where we are firmly established," said Fausto Lanfranco, president of CNH's construction equipment business. "In Japan and other Asian countries, the alliance will provide broader market access through Kobelco's strong distribution system.

"The excavator product is the pillar around which we will continue to expand our heavy product line. We are very pleased to be offering what we feel is a best-in-class crawler excavator to our customers around the world based on Kobelco's technology, as we are very satisfied with Sumitomo's support of the Case and Link-Belt networks."

Tsuguto Moriwaki, president and chief executive officer of Kobelco, noted that "through this global alliance, Kobelco will have an opportunity to become a full-line supplier of construction equipment in Japan and the Asia-Pacific region, leveraging the broad CNH product portfolio that covers every industry segment and enables us to service customer needs. In addition, through the participation in Fiat-Kobelco, Kobelco will have access to a state-of-the-art manufacturing facility in Europe."