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In 2000, the Engine Business posted earnings
before interest and tax* of $24 million. Even before market
conditions declined mid-year, we initiated actions to redefine
our participation in the North American heavy-duty truck market
in order to improve profitability over the business cycle.
By first quarter 2001, we had negotiated three long-term supply
agreements with original equipment manufacturers (OEMs) as
part of that strategy.
Mining
The QSK engine has increased our success in
the mining market. The engine's outstanding 98 percent availability
rating led to an agreement with Komatsu to be the exclusive
supplier of engines to its mining equipment division. By the
end of the year, the success of the 2700 horsepower QSK60
helped increase our penetration from 26 percent in 1999 to
47 percent for mining applications above 2000 horsepower.
Dodge Ram, Recreational Vehicles
Cummins shipped 119,000 engines for the Dodge
Ram, setting another record despite DaimlerChrysler's production
slowdown in all vehicle categories at the end of the year.
A decline in consumer demand was reflected in lower shipments
of engines for recreational vehicles, but Cummins continued
to be the market share leader.
Medium-duty Truck & Bus
Overall, shipments of engines for medium-duty
trucks declined five percent from 1999 levels, as stronger
European and Latin American sales offset the weakened North
American markets. Ford recognized our product quality with
its Q1 supplier designation for the engines we shipped to
its plant in Mexico.
Cummins maintained its #1 position in the transit bus market,
and Blue Bird Corporation selected the ISB engine as standard
power in its conventional school bus.
Construction, Agriculture, Marine
Sales for these industrial markets were up
four percent over last year. The QSM11 marine engine continued
to draw excellent reviews throughout 2000. Worldwide construction
markets softened slightly through the year, as North American
business declined but Asian markets improved.
Heavy-duty Truck
The North American market for heavy-duty engines declined
dramatically from the record levels of 1999Ñdriven by an oversupply
of new and used trucks and a general economic slowdown. The
falling volumes forced significant reductions in our work
force. Outside of the U.S. and Canadian markets, sales of
truck engines grew steadily, most notably in Mexico, Europe
and Latin America. Cummins is the market leader in the United
Kingdom, Australia and Mexico.
Improvements and Investments
The corporate-wide Six Sigma process improvement program
was central to efforts to address quality issues. In 2000,
our participants completed projects with an annualized value
of almost $16 million.
We also benefited from the work of direct and indirect purchasing
teams, which helped us reduce costs significantly by consolidating
purchases and negotiating deeper discounts.
With more stringent environmental rules on the horizon, we
invested in research for advanced solutions to emissions control.
One such investment is a minority interest in a privately
held manufacturer and developer of catalytic products for
air pollution control and fuel cell systems.
We also invested in a common information technology platform
across all our distributors in North America. That platform
gives us greater inventory control, customer satisfaction
and productivity measurement, as well as a database of best
practices in customer care.
Looking ahead
We are leveraging our OEM partnerships, new product lines,
technical strength, production scale, global network and exceptional
people to attract new customers. With these assets, and a
strategy to reshape our approach to the global truck engine
market, we can effectively meet the challenges and capture
the opportunities ahead.
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Joe Loughrey
Executive Vice President
President, Engine Business
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