Executives at Cummins Inc did not expect their blessings to come in disguise, particularly when they were disguised as US governmental regulations.
So, when engineers at Cummins, a diesel engine maker, first saw the suggested new federal clean-air standards for their engines in the early 1990s, they argued that the standards would be impossible to meet. After the standards became official in 2000, Cummins sued, and industry insiders started placing bets on whether the company would be one of the few to meet the technical challenges -- and survive.
But last month, when the US Environmental Protection Agency (EPA) needed a place to trumpet the success of the standards, it came here, to Cummins' headquarters. A day after the EPA event, Cummins followed with more good news, announcing that it would invest US$250 million to revive a partially idled plant and hire 600 workers to build state-of-the-art light-duty diesel engines.
What had changed at Cummins, and at other diesel engine manufacturers, was not just that they had learned to adapt to tougher environmental regulations. Instead, the new, cleaner engines have become a point of pride.
"Cummins is the Mark Twain of the engine business," said Mike Osega, the publisher of the trade magazine Diesel Progress. "Their demise has been predicted by everyone in the last 20 years. But they keep getting better."
Indeed, Cummins, along with companies like Caterpillar, has led an unexpected industry revival.
"Columbus, Peoria, these were all supposed to become ghost towns," Osega added. "But this whole industry has prospered. Cummins is a microcosm of what the industry is going through."
The main market in the US for diesel engines remains trucks and heavy equipment for construction, mining and off-road transportation, like locomotive engines. But new engines, with pollution-control technology, open the way for more diesel-powered light trucks and sport utility vehicles.
Diesel engines, the muscle T-shirts of the automotive world, may be the new black. Much of the clatter of the old diesel engines is gone.
Pickup is improved. Light-duty diesel engines can get 30 percent more from a full tank of fuel than their gasoline counterparts. Almost half the cars sold in Europe last year were diesel-powered. And the new generation of diesel engines, compliant with the standards that take effect on Jan. 1, may eventually compete with hybrids for the energy-conscious consumer in the US.
Cummins' revived local factory, for instance, will make light-duty engines for as-yet-unspecified new Chrysler vehicles -- probably light trucks, maybe sport utility vehicles.
The engine manufacturers lobbied heavily for the petroleum refiners to reduce the sulfur in diesel fuel. Without much cleaner fuel, the engine manufacturers argued, the essential pollution control devices would not work and the new standards could not be achieved.
Thanks in part to the diesel engine makers' arguments, the EPA mandated that the sulfur content of diesel fuel be cut to 15 parts per million from 500. Sulfur is a major factor in stopping the cleansing action of pollution equipment like catalytic converters. The result is the formation of microscopic soot, which can penetrate deep into lungs and cause serious illness. This tiny soot, or particulate matter, is the deadliest air pollutant regulated by the federal government.
"People are always asking, `What are the limits of diesel combustion?' The answer is: It depends on what day you ask, because we've got a lot of people working hard to move those limits and we've done that over time," said John Wall, Cummins' vice president and chief technical officer.
Cummins has tailored its designs and manufacturing processes to incorporate the EPA's mandates into all its machines. The company offers truckers engines whose pollution-reducing parts are part of the Cummins family, not proprietary components from other manufacturers.
Asked about the devices that treat the exhaust once it has left the engine, Christina Vujovich, Cummins' vice president for marketing and environmental policy, said: "We didn't want to take on after-treatment just because it was sexy to do. We only wanted to take it on because it provided additional value to customers."
Wall said that the company did not want to get in the position where it might get blamed for a problem caused by another manufacturer's components.
"You really like to have all that in your control, so that you're not at the mercy of someone else not turning up with their part of the costume," he said.
Analysts are divided on the wisdom of this strategy, some sharing the belief that one-stop shopping is a virtue, others arguing that the company, by limiting the suppliers of engine components, could be cutting itself off from technological advances that might emerge elsewhere.
Vujovich said the company's extensive contacts in engineering schools ensure access to emerging technologies.
Pleasing the EPA with an integrated, fuel-efficient, low-emissions engine is not the point of the exercise for Cummins or its big rival, Caterpillar, of Peoria, Illinois, which is heavily marketing the environmental and performance attributes of its Acert engines.
"We've invested heavily in what we believe is a very competitive, clean diesel technology," Rusty Dunn, a Caterpillar spokesman, said in an e-mail.
"As we remind our engineers, the EPA has never bought a single engine from Cummins. This is really about how do you create customer value," Wall said.
Environmentalists have long embraced the notion that environmental rules can create competitive advantage, but it has not been well received in most boardrooms -- except, perhaps, companies like Corning and Engelhard, which have made huge profits on emissions-control technologies.
In most company annual reports, environmental regulations are routinely labeled "risks." But more and more, they are hard-wired into business strategy as well.
For instance, a smaller but fast-growing part of Cummins' business is its components segment. It specializes in emissions-related engine parts like filtration systems, fuel systems, turbochargers that regulate the amount of air going into the engine and emissions-reducing technologies.
The research budget for these businesses has grown by 45 percent, to about US$57 million this year from about US$39 million in 2004, the company reports. Such expenses reflect the high priority given to this segment, though they also held down margins on earnings before interest and taxes, which dropped to 4.5 percent last year from 6.7 percent in 2003, even as sales rose 50 percent to US$2 billion.
In 1998, the EPA wrung a stringent settlement from the industry. It got the largest civil penalty in environmental enforcement to date -- US$83.4 million -- and made seven major manufacturers spend a total of more than US$1 billion to reprogram devices that disabled emissions controls when the engines got hot in traffic -- what the EPA called "defeat devices."
Cummins' overall sales, like those in the rest of the industry, have boomed for three years. Industry analysts say this is a product of a mini business cycle for the diesel industry. With regulatory deadlines approaching, customers are motivated to buy the last of the old trucks in order to delay as long as possible the purchase of new ones with emissions controls that can add as much as US$7,000 to US$10,000 to the price of a US$100,000 truck.
"The '07 truck regs have spawned a long steady pre-buy ... This, and a robust economy, has driven truck and truck engine sales to historical highs," Osega wrote in June.
Corporate profits and stock prices followed. Caterpillar, with a market capitalization of US$40 billion, is nearly six times the size of Cummins. But Cummins has surged faster. Its net income reached US$550 million last year, up tenfold from US$54 million in 2003. Caterpillar's sales in the same period rose fourfold, to US$2.85 billion from US$798 million in 2003.
But that cycle is peaking.
"Engine manufacturers and truck people are earning record profits," said David Bluestein, an industry analyst. "Early next year, it's going to come to a screeching halt."
Indeed, on Oct. 20, Caterpillar reported record results but cut its earnings forecast for next year. The company's stock closed at US$59.20 on Thursday, up slightly from a year ago, but down from last June, when it broke US$80. Cummins' shares are up 29 percent for the year. They closed at US$118.77 on Thursday.
But Vujovich and Wall said that Cummins' other products, like engines for power generators, combined with its ability to keep up with the new requirements in the US and Europe will help cushion the expected decline in the basic truck business.
And they think they have a competitive advantage going forward. Ivan Feinseth, an industry analyst with Matrix USA, agrees.
"They have the resources to comply," Feinseth said, "and they have low-emission engines."
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under