By Boris Ladwig, The Republic
bladwig@therepublic.com
Chrysler LLC has officially agreed to honor its contract for Cummins Inc.'s midrange engines, but cancelled its contract to produce light-duty diesels.
That means the 6.7-liter Turbo Diesel will continue to be built at Columbus Midrange Engine Plant, but puts in question the future of the light-duty diesel engine, which is planned to be built at Columbus Engine Plant.
The move officially delays - but does not cancel - the project, said Mark Land, Cummins xecutive director of corporate communications.
Chrysler spokesman Bryan Zvibleman would say only that, "We're continuing to explore a variety of propulsion alternatives."
Chrysler emerged from bankruptcy June 10. Most of its assets were transferred to a new company headed by Italian automaker Fiat.
As part of Chrysler's emergence from bankruptcy, the company had to list which contracts it would honor - and which ones it would not, Land said.
Wednesday's filing means the 6.7-liter engine made exclusively at CMEP in Walesboro will continue to power the 2500 and 3500 versions of the Dodge Ram.
"It's just a matter of when," Land said.
Cummins has idled CMEP for more than a month because Chrysler has halted production at its Saltillo, Mexico plant, which assembles Dodge Rams.
Associated Press reported Wednesday that Chrysler had a 115-day supply of Dodge Rams, and that industry analysts say a 60-day supply is optimal to provide enough of a selection, but not so much that large incentives will be needed to move vehicles.
Although Cummins expected the midrange contract to be honored because the Cummins-powered Ram has been a valuable part of Chrysler's product line, Land said having that confirmed on paper is "terrific news for us."
LDD project delayed
Land also said that Cummins had expected Chrysler to cancel the LDD contract, because it was reached long before the economic crisis and because the parties are renegotiating.
He said Cummins still expects that a Cummins LDD engine will power light Dodge Ram pickup trucks - though he could not say when that would happen or how many engines would be produced.
The engine also will be sold to Nissan, but none of the companies has released many details on the contract or the engine specifications.
Cummins in 2006 said that it planned to begin LDD production at CEP, also known as Plant 1, by the end of the decade after investing $250 million employing between 600 and 800.
Land said Thursday that Cummins probably would not meet its initial timeline.
But he also said that executives for months have said that economic conditions, high diesel prices and Chrysler's challenges have put the brakes on the LDD project.
Shortly before the annual meeting last month, Cummins Chief Operating Officer Tom Linebarger said that Cummins has significantly reduced its expectations of how many LDD engines Chrysler would buy because of the economic downturn and Chrysler's challenges.
"Our view is that the engine's a good engine. The line's a good line. We're fully invested. What we need now is a set of customers that make a legitimate business plan to launch and make the engine," Linebarger said.
"So we're kind of now ... almost back to Square 1, saying, 'Who are our customers for this?' Chrysler, we're hoping, emerges and they are a customer, but then also we need to identify another key customer for the whole thing to work.
"The total package does not add up to an economic scale yet (and even) if Chrysler's back, it's not a hundred percent clear that just them adding back in makes it economic," Linebarger said.
Cummins shares fell 62 cents or 1.9 percent Thursday, closing at $32. The Dow Jones Industrials Average rose 0.69 percent.