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April 10, 2017 3:35 PM, EDT

Eaton, Cummins to Form Joint Venture for Automated Transmissions

Eaton Corp. and Cummins Inc. have agreed to form a joint venture to produce automated transmissions for medium- and heavy-duty trucks, a move that would deepen the suppliers’ long-standing powertrain alliance.

Cummins and Eaton each would own 50% of the venture, to be named Eaton Cummins Automated Transmission Technologies.

Cummins will pay Eaton $600 million for its stake, while Eaton will contribute the designs for its next-generation automated heavy-duty transmission, as well as its current Procision medium-duty transmission and certain assembly assets.

The transaction is expected to close in the third quarter, pending regulatory approval.

Craig Arnold, Eaton’s chairman and CEO, said the joint venture will better position the company’s transmission business to meet the industry’s demand for reduced emissions and greater fuel economy — largely driven by regulation — as well as improved drivetrain performance.

“Our joint venture with Cummins will leverage the technical strengths and experience of two industry leaders with long histories and deep industry expertise to provide superior automated transmission technology for our global customers,” Arnold said.

The combination also will expand Eaton’s access to global markets for automated transmissions, he said, adding that the joint venture will use the proceeds of the transaction to target growth opportunities.

Cummins Chairman and CEO Tom Linebarger said his company’s joint venture with Eaton “will deliver the most advanced automated transmissions and develop an integrated powertrain and service network that supports our customers like never before.”

The joint venture will build on the partnership between Eaton and Cummins. The two independent suppliers have long collaborated on product integration through their SmartAdvantage powertrain lineup, which pairs Cummins’ engines with Eaton’s transmissions.

The joint venture, however, will focus on more tightly integrating transmissions not only with Cummins’ engines, but also with truck makers’ vertically integrated offerings, Arnold said.

Most truck manufacturers have been heavily promoting their own proprietary engines, while continuing to offer Cummins engines as a third-party option. Cummins, based in Columbus, Ind., is the only major independent supplier of heavy-duty truck engines remaining in the North American market.

Eaton’s Arnold said much of the trucking industry’s ongoing transition from manual transmissions to automated manual transmissions has taken place but isn’t completely done.

That broader movement toward AMTs has heightened the industry’s focus on ensuring that the engine and transmission work together in an efficient way, Arnold said. Tightening emission and fuel-economy standards also requires the engine and transmission to work together in a more seamless fashion, he added.

In addition to developing new products, the joint venture will sell and support Eaton’s current heavy-duty automated transmissions in North America. Eaton will continue to manufacture those transmissions during the transition period.

Meanwhile, Eaton’s Vehicle Group will retain its global manual transmission and clutch businesses, as well as its current generation of medium- and heavy-duty automated transmission products outside of North America. Eaton also will retain its light-duty and agricultural transmissions aftermarket business, as well as its global automotive business.

Eaton, based in Dublin, is a diversified supplier of power management products.

The joint venture’s board and management will be composed equally of Eaton and Cummins leadership.

Cummins will report the joint venture’s revenue as part of its Components business segment.

Eaton will report 50% of the venture's earnings within its Vehicle segment.

Arnold said the joint venture is in “startup mode.” As such, Eaton said it expects no material change in operating profits for its Vehicle segment in 2017 and 2018 as a result of the joint venture. It expects revenues for that segment to decline about $25 million in 2017 and fall about $200 million in 2018.