BATTLE FOR TH LOWER GROUND
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Perkins has surprised many industry observers with its purchase of Rolls-Royce diesels and Gardner, while arch-rival Cummins moves determinedly down the power range.
I Seldom has diesel engine manufacturig been in the news as much as it is this ear, and the names that keep making ie headlines are Cummins and Perkins. _host every recent development — 3ch as the Perkins acquisition of Rolls.oyce Diesels two years ago, followed y its more recent purchase of L. Garder and Sons, and on the Cummins side, le start of production of the B Series, to 132kW range at its Darlington plant has brought these two engine making iants into more direct, fierce competion with each other than ever before.
Is that by design or accident, and what re the strategies that lie behind these loves? What effect are they likely to ave on the end users of the companies' 7oducts, vehicle operators? These are some of the questions we had in mind when we spoke recently to top men from both companies.
We started at Peterborough with Ray Carrell, director, Europe of the Perkins Engine Group.
THE PERKINS VIEW About two years ago Carrell had picked out 30% manufacturing overcapacity worldwide as the dominant factor that was influencing the diesel engine business. How has that altered, if at all, since then?
"Nobody has taken capacity out," replies Carrell. "Indeed in Europe Cummins has added capacity (with B Series production at Darlington) so the situation is the same now, if not worse." One inevitable result of this, according to Carrell, is the intensification of the battle for market share between the loose engine suppliers, which, as a group, he sees beginning to win back some business from truck manufacturers who make their own engines. One example of this is RVI's use of the Perkins 3.86-litre T4.38 for its new 5100 6 to 8.7-tonne GVW truck range, in place of the earlier Renault engine.
Between 1979 and 1983 Perkins' output of completely built-up engines from its Peterborough plant (kits for assembly overseas are also manufactured there) fell from 245,000 to 130,000 and the workforce was cut from 13,000 to 5,600. Carrell now speaks confidently of this downward trend having been firmly reversed. "Since 1982 we have stabilised the business. Last year it grew slightly and this year will see it grow more. In 1985 we built 133,000 engines. In 1986 that figure will increase by more than 10%," says Carrell.
Nevertheless, the purchase by Perkins of two engine manufacturers, Rolls-Royce at Shrewsbury and Gardner, shortly after seeing its own production fall so dramatically has raised a few eyebrows. How does Carrell explain these moves?
"Our strategy is clear. We are trying to balance our business, to make it a three-legged stool, the three legs being agricultural, industrial and automotive engines. We want each of these to take an equal share of our business."
Clearly that will involve considerable growth in Perkins' commercial vehicle business because currently, in volume terms worldwide, it accounts for only 10% of the whole business.
By 1990 we will have reached our 30% commercial vehicle engine target, and that does not include diesel engines for cars and car-derived vans (the Prima two-litre direct-injection engine), says Carrell, adding that the acquisition of both Rolls-Royce Diesels and Gardner "fits that strategy perfectly. Rolls-Royce took us into the heavy truck sector in Europe for the first time. It also gave us signifi cant new business with the Ministry of Defence. Gardner has given us a major presence in the bus and coach sector." He points to the Society of Motor Manufacturers and Traders' statistics to deny that there is an overlap between Perkins (Shrewsbury) and Gardner customers. "Gardner's biggest truck customer is probably Perkins (Shrewsbury)'s smallest," he says.
Returning to the bus and coach sector to illustrate the importance of L. Gardner and Son to Perkins, Carrell cites the recent order by Kowloon Motor Bus of Hong Kong for 108 Gardner engined Dennis, Leyland and MCW buses. "That decision was hanging in the balance while Gardner's future was in doubt. The order could have gone to Cummins. The Perkins decision to buy Gardner swung Kowloon's decision Gardner's way," he says.
It is clear that Cummins is the competitor which Carrell and his team watches most closely. "Part of the motivation for 1 our buying Rolls-Royce and Gardner was to increase the strength of our armoury for the battle for market share against Cummins, but also against Deutz and the other players, particularly in Europe."
How does Carrell regard his company's relative strengths and weaknesses compared with Cummins? He divides his answer into two parts, one dealing with the product (particularly the mainstream Peterborough-built engines) and one with the company itself because, he says, "We work just as hard these days in differentiating ourselves from competitors like Cummins in non-product ways as we do with the product."
He describes the Cummins B Series engine, which has taken Cummins into direct competition with Perkins for the first time in the 42-132kW power range as "a full step behind our current Phaser range. The B Series was targeted at our earlier 4.236 and 6.354 engines. We were well aware of the threat and my first major task at Perkins was to get one step ahead of them again. We believe we have a better premium engine with the Phaser, and a volume base on whicl to support it.
"'They have done a number of things with B Series that we have considered doing but decided against. For example, they went linerless; we stayed with cylinder liners. The reason we did so was because silicon carbide technology came along which allowed us to have much tighter oil consumption, better friction characteristics, as well as the rebuilding advantages it gives.
B Series engine has been quoted as 'a 100,000 mile engine'. That is half of our current product.
"B Series was designed with an eight minute test cycle in mind, Phaser was designed for a six-minute test cycle. To sum up, the B Series is a response to our earlier engines, our Phaser is a response to the B Series."
Turning to the business difference be tween the two companies in this market sector Carrell says: "You always have a weighted advantage when you are an incumbent. There is an old marketing adage which says that missionary work i always six times harder. We deal with 200 to 300 original equipment manufactu ers. We do a good job in defending our territory. We reckon we have the world's best (engine) distribution network. We have 15 licencees around the world and we have exported for 52 years. It is pretty hard for Cummins or anyone else new to come in and offer a better package."
THE CUMMINS VIEW David Armstrong is Cummins Engine Company marketing director, based at the company's head office in New Malden.
We asked him for his view on this question of overcapacity in the diesel engine business. How does Cummins' decision to build a lot more engines at Darlington square with that?
"Certainly we are adding to the overcapacity," he concedes, but makes no apology for that. "Fundamentally the reason for this becomes clear if you look at our traditional business base. In automotive terms it has long been on the heavy-duty side, not only in this country but all over the world. Our expectations of future growth in these markets are much less optimistic now than they were 10 years ago. We do not see much room for growth for us as a result of growth in total commercial vehicle markets and we do not see much room for growth by wa3 of increasing our market share, basically because we have such dominant shares in the principal markets already.
"Therefore if we as a company want tc continue to grow, as we do, we must move into new market sectors."
Armstrong believes that by being completely new to the lower-power sector can help Cummins to sell engines. "One of our advantages is that we can go in with a new product range, new production facilities and a whole new approach." Will this growth stop at the B Series? "I think it is likely to go further but in the context of non-automotive engines. For example, we have extended our range upwards to about 1,800hp."
Does Cummins plan to go further down the power range than B Series to take it into even more direct competition with Perkins?
"It would certainly be premature for us to seek to move in that direction when B Series, in this part of the world anyway (the engine first went into production at the joint Cummins/Case Rocky Mount plant in the USA in 1982) only now is coming fully on stream, and this engine represents quite a radical change for us. We would be ill advised to move too far, too fast."
How is Cummins' business split between automotive and other sectors?
"Automotive is certainly the most important single segment of our business (last year 55% of Cummins engines went to this sector) and will remain so. But we have only a relatively small amount of automotive business in Europe outside the UK."
How will the introduction of B Series change that?
"In the immediate future it is likely to increase the importance of the UK. In the long term who knows? Our initial volume from Darlington will undoubtedly come from UK customers.
"In automotive terms there are not many new engine customers around, but we expect to win a very high share of the available business. Leyland and ERF have already announced that they will use the B Series. Put those two together and it is a very good start."
Armstrong is keen to make it clear that it would be "absolutely wrong" to suggest that Cummins was intent on competing with Perkins across the board, and not worrying about other competitors.
'Certainly, as far as B Series is concerned, we are out to take part of Perkins' current dominant market share but so far as our more traditional, heav duty engines are concerned we do not regard Perkins as our most serious corn petitor, by whom we should set any sta dards. Our real competitors here are th vertically integrated truck manufacturer (which make their own engines)."
How would Armstrong characterise t differences, in company and product, bE tween his company and Perkins in the areas where they do compete head-on? Dealing with the business differences first, Armstrong says "Firstly, we are most exclusively in the diesel engine business, and the company depends solely on it for its livelihood. Clearly, a: part of Massey Ferguson (now the Vani corporation) Perkins is different.
"That is a fundamental difference and is what has helped our business to grov at a faster rate than that of Perkins. That, in turn, has led to another fundamental difference — sheer size. In turn over terns, and a whole lot of other terms, we are very much bigger than Perkins, and that gives us the competitive edge by enabling us to spend more on research and development, for example."
Comparing the B Series with Phaser, Armstrong picks out the main differenci as these: "The B Series has been in production in the USA for four years ar now is being turned out in substantial volumes — about 200 a day from the Rocky Mount plant alone. Therefore, IA have a whole mass of experience. Moreover, we carried out extremely extensive testing and evaluation of the engine before we introduced it and so I honestly believe there is no comparison between what we and our customers know about this engine, and the new Phaser."