Eaton Corp. and truck engine partner Cummins Inc. are now forming a new 50/50 joint venture to build automated mechanical transmissions (AMTs) for heavy- and medium-duty commercial vehicles to be called Eaton Cummins Automated Transmission Technologies.
The two companies said in a statement the new joint venture should be finalized by the third quarter of this year, with Cummins consolidating joint venture results as part of its components business segment going forward.
Meanwhile, Eaton gets $600 million in cash from Cummins for its 50% interest in the joint venture and will report its earnings from the venture though it vehicle group.
Craig Arnold, Eaton’s chairman and CEO, noted in a conference call with analysts that the fiscal impact on Eaton’s revenue in 2017 and 2018 will be “notably muted,” with expectations for $25 million in 2017 and $200 million in 2018 as the joint venture is in “startup mode.”
Going forward, however, he thinks this particular joint venture will deliver “even more attractive returns” while providing added and needed scale to Eaton’s global vehicle business.
“We think that business is well positioned for growth in and around changes in a regulatory environment based fuel economy and [exhaust] emissions control,” he added. “We think it strengthens us to best address future demands for drivetrain performance.
Once established, Arnold said the joint venture will design, assemble, sell and support all future medium- and heavy-duty automated transmissions for the commercial vehicle market – which includes Eaton’s current medium-duty AMT, the Procision, as well as a next generation heavy-duty AMT currently under development.
The joint venture will also be tasked with marketing, selling, and supporting Eaton’s current generation of automated heavy-duty transmissions to OEM customers in North America, Arnold noted.
“We’re going to continue manufacturing those heavy-duty automated transmissions but sell them through the joint venture,” he stressed.
Arnolds stressed, however, that Eaton’s Vehicle Group will retain its global manual transmission, global clutch, current generation medium- and heavy-duty automated transmission business outside of North America, as well as control of its global aftermarket, light-duty transmission, agricultural transmission, and global automotive business and associated product lines.
“Customers are focused on powertrain solutions that provide the best combination of technology, performance and quality,” he emphasized.
“This combination puts together two of the world’s leading powertrain suppliers to position our respective businesses to develop solutions for emissions, fuel economy and ultimately performance as well.”
Arnold added that Eaton has worked with Cummins for many years, which is why it’s put automated transmissions into this joint venture.
“Like the Smart Advantage technology we developed years ago, this is an opportunity to build on our history and do better job of deeper integration,” he said.
The joint venture will also increase Eaton’s access to global markets, allowing it to benefit from Cummins’ scale around the world. “We’re equally excited for the synergies that come with working more closely together, such as in purchasing, than we can do as independent companies.”
“Our growth strategy includes expanding our product offerings and extending our global footprint by becoming the world’s leading powertrain supplier,” added Tom Linebarger, chairman and CEO of Cummins. “Our joint ventured with Eaton will deliver the most advanced automated transmissions and develop an integrated powertrain and service network that supports our customers like never before.”