Cummins plans to keep on truckin’

For The Tribune

Cummins shareholders attending the company’s annual meeting Tuesday in Columbus received an update from Chairman and CEO Tom Linebarger that they were likely glad to hear.

“The story for Cummins is good performance in a tough environment,” Linebarger said in a Monday interview with The Republic, a sister newspaper of The Tribune.

That good news included information about the company’s plans to begin full production of the QSK95 engine, nicknamed the “Hedgehog,” for power generation and off-highway markets.

The 4,200-horsepower Hedgehog, the largest high-speed diesel engine in the world in terms of power, is being produced at the company’s plant in Seymour.

The Columbus-based engine maker achieved record year-end revenue ($19.2 billion) in 2014, and the company’s first-quarter sales ($4.7 billion) increased 7 percent from the same three-month period last year. That success was achieved largely because of increased North American sales and despite weakness in international markets and the negative impact of a strong U.S. dollar.

Despite the challenges, Cummins is forecasting full-year revenues to grow 2 to 4 percent.

The Hedgehog will take Cummins into new segments of the market, such as rail, gas compression, larger marine vessels and power generation sets above 3 megawatts.

“Now we can get into it because we have an engine that can get us into there,” Linebarger said.

On Monday night, the Seymour City Council approved a $22.89 million tax abatement for the company’s ongoing project to manufacture the Hedgehog. The company plans to add 111 jobs to its existing workforce of 352 in Seymour.

A strong U.S. truck market and demand for Cummins-made diesel engines designed for trucks have driven the company’s total North American sales increases. Revenue rose 20 percent in North America in 2014 and increased 17 percent the first quarter this year.

“We have very good market position in the U.S. truck market. Our products are very competitive there, still after all these years, still a leader there,” Linebarger said.

Cummins is hoping for even better results in the North American truck market because its project with Nissan is coming online.

Nissan Titan project

The 5-liter V8 Cummins Turbo Diesel, being built at the Columbus Engine Plant, will power the new Nissan Titan XD pickup truck. The Japanese automaker wants to increase its share in the light pickup market, where it trails top-selling models from Ford, Chevrolet and Ram by a wide margin.

Some prototypes of the engine have been produced, but production will really begin in the fourth quarter of this year, Linebarger said. A lot of goals have to be met to make sure the engine is ready by then, he said.

“It’s going to be slow at the start. They’re new in the market with a product like this. Our hope is it takes a lot of market share and grows like crazy, but we’ll see,” Linebarger said.

About 450 people total work on the project, company spokesman Jon Mills said. Cummins said in January that more people will be hired as production ramps up, and the total eventually could exceed 600.

In addition to the North American truck market, Linebarger also credited the company’s diverse market reach, the successful launch of new products and strategic planning for its ability to make progress in headwind conditions.

“Because we’ve been investing in technology and products for some time, we’ve been able to take some market share and some really challenging markets, which has helped,” Linebarger said.

One of those investments has been in the Chinese truck market, the largest in the world. An 11-year partnership with Beigi Foton Motor Co. has helped Cummins reach 17 percent market share in China, Linebarger said.

Cummins has been making a light-duty diesel engine for Foton, the ISF, which reached 400,000 units produced.

“They make a lot of small trucks. As our engines penetrate those applications for small vehicles, that drives a lot of volume potential for Cummins. That same engine, the ISF, we’re selling in Brazil and Russia,” Linebarger said.

Greater China presence

Last year Cummins launched its first heavy-duty diesel engine in China for Chinese markets, the ISG, also to be used in Foton trucks.

“We’re penetrating very quickly in the market. (Foton) used to be a big customer of one of our competitors in China, and now we are driving up our market share with Foton, which is terrific,” Linebarger said.

The ISG includes a telematic system, which provides feedback on drivers and fuel economy. It signals reminders for timely maintenance and issues alerts for problems that need to be fixed quickly, which helps keep trucks on the road longer, Linebarger said.

Linebarger said Cummins’ 17 percent market share in China beat his original goal of achieving that mark by 2018.

The ISG engine was one of 67 new or improved products Cummins launched globally last year, Linebarger said.

Cummins’ strategy of buying its distributors is reaping rewards in terms of helping the company’s sales and gaining business, Linebarger said. The company has purchased 10 distributors, including seven last year, and plans to buy three this year, he said.

That strategy also helped Cummins land a deal with Halliburton, providing Tier 4 emissions-compliant engines for hydraulic fracturing equipment. The deal was announced in April.

Linebarger said he met with Halliburton President and CEO Jeff Miller more than a year ago. Miller explained that Halliburton was supplied by Caterpillar but liked Cummins engines and wanted to use them. However, Halliburton needed great support across the U.S. and didn’t want to deal with different distributors.

“I was able to tell Jeff, unlike our competitor, we own these distributors now,” Linebarger said. “So we cannot only guarantee you a common service but same pricing for parts, same pricing for service, one deal, factory support whenever you need it. And Tier 4 (emissions) compliant. We won the business.”

Author photo
Kirk Johannesen is assistant managing editor of The Republic. He can be reached at johannesen@therepublic.com or (812) 379-5639.