End of an EEAra: European Engine Alliance ends; Cummins purchases CNH share of CDC; Fiat to acquire Cummins assets in Turin plant

Diesel Progress North American Edition, Sept, 2008 by Mike Brezonick

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When it was announced that Cummins Inc. and two operations of Italy's Fiat would end the European Engine Alliance (EEA), it was certainly significant news. Yet hardly unexpected news, particularly to anyone who had been paying attention to the goings-on at Fiat over the last few years.

First the basics. Under a new agreement, Cummins will purchase CNH's 50% stake in Consolidated Diesel Co. (CDC), and will sell its one-third interest in the EEA. That interest consists primarily of cylinder head and block manufacturing in Turin, Italy. CDC, founded as a joint venture between Cummins and Case in Whitakers, N.C., will become a wholly owned entity of Cummins.

The EEA was established in 1996 as a joint venture between Cummins and two Fiat Group companies, Iveco N.V. and New Holland, which is now part of CNH Global N.V. The goal of the venture was to develop a new generation of 4, 5 and 6 L diesel engines.

While that target was certainly met--the EEA-developed platforms were the basis for Cummins Tier 3 B series engines, Case-branded CDC-built derivatives and Iveco's NEF diesels, all of which were used in various Case and/or New Holland machines--it became increasingly clear that changes in Fiat's direction, particularly its growing focus on its own engine sales, would affect the long-term viability of the alliance.

The first writing on the wall may have come as early as 1999, when New Holland N.V., owned by Fiat, purchased Case Corp. as part of its foundation of CNH Global. Then in mid-2005, Iveco's engine and powertrain activities were merged into Fiat Powertrain Technologies (FPT), which more aggressively began pursuing growth in engine sales. That put Cummins and FPT in competition for much of the same business--hardly an ideal situation for alliance partners.

"I think what happened was just a natural evolution of both parties' interests over time," said Jim Kelly, president of Cummins Engine Business. "It was not concealed by Fiat Powertrain and has been very clear to us that there is an internal strategy in the Fiat companies to move at a reasonable pace to have Fiat Powertrain Technologies be the primary--if not exclusive--diesel engine supplier for other Fiat companies.

"Likewise, we finished the development work we did together in the EEA at Euro 3. We've each introduced our own versions of the Euro 4 product for Europe and in our case many of those features are resident in our B series engine platform.

"I would say that alliance worked well. It's just that both parties' interests evolved from where it started and when the opportunity occurred, both partners agreed to negotiate the eventual terms."

Alfredo Altavilla, CEO of FPT, said that the transaction "confirms Fiat Group's strategy to further strengthen its engine and transmissions capabilities under the guidance of FPT.

"Full control of EEA will enable FPT to develop the new generation of NEF engines," Altavilla added. "At the same time, FPT has already started gradual substitution of the CDC engines leveraging its new product portfolio.

"Moreover, this transaction enables CNH and Iveco to take advantage of Fiat Group's synergies and to further leverage on FPT's key technology developments--particularly toward overcoming the challenges of increasing engine emissions regulations and attention on fuel consumption."

While the EEA is ending, relationships between the companies will continue for some time. As part of the mutual agreement, CDC will continue to supply the NEF 6.7 L diesel engine to CNH manufacturing locations in North America for a limited time. Cummins will also continue to supply 8.3 and 8.9 L engines from its C and L series families to CNH. Similarly, FPT will supply engine components to Cummins from Turin, primarily to Cummins' Darlington, U.K., facility.

"The C and L agreement and the components out of Turin are long term," noted Kelly. "As far as the NEF engines out of CDC, it's clearly Fiat Powertrain's intent to take them from their European operations as quickly as they can."

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Precise timetables as to when NEF engine production would shift completely away from CDC are not set in stone, Kelly said. "There are some tentative end points on it, but it's really open-ended at this point," he said. "However, it's not long term."

CDC, which was founded in 1980 and was producing engines in volume three years later, has produced in excess of 2.7 million midrange engines, according to Cummins. The plant is now designated the Cummins Rocky Mount Engine Plant (Whitakers is about 12 miles north of Rocky Mount, N.C.) and will continue to produce midrange engines. But the eventual shift of engines away from that site won't leave Cummins in danger of having too much excess capacity, Kelly said.

"When the requirements on us for the NEF engines go away, it will free up some capacity for us," he said. "But the Case brand and the CNH requirements out of CDC have been reduced year-over-year for the last five or six years. The C series activity shouldn't change in that there is the supply agreement that lasts well out into the future and Case's product strategies continue to have tractors that require that 8.3 and 8.9 L engine.