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Cummins Expands Cooperation With Dongfeng Automobile

Cummins Inc. and Dongfeng Automobile Company Limited (DFAC), a subsidiary of Dongfeng Motor Company (DFM), announced on Saturday that DFAC's licensee plant, which produces Cummins B series engines, and Cummins cylinder block and head machining company will be integrated into the Cummins and Dongfeng existing joint venture company, Dongfeng Cummins Engine Company Limited (DCEC). The expanded Dongfeng Cummins will add Cummins B series engines to its production capabilities, and will continue to be a 50-50-equity joint venture between DFAC and Cummins. The announcement took place in Beijing, China.

"This is another significant step for Dongfeng, after joining hands with PSA and Nissan recently to upgrade its international competitiveness" said Miao Wei, General Manager of Dongfeng Motor and Chairman of DFAC. "And (this) will undoubtedly pose profound impact on China's internal combustion engine industry."

"China is one of the two most important international markets for Cummins," said Tim Solso, Chairman and CEO of Cummins, who paid a special visit to Beijing for this ceremony. "This expansion is a key effort in Cummins global strategy and also the most significant milestone for Cummins since entering the China market in 1975."

The expanded Dongfeng Cummins, with registered capital of $100 million, will have access to the most advanced Cummins full-electronic diesel engine platforms. DCEC will make full use of the existing manufacturing facilities for resource integration and optimization to greatly enhance technology and product competitiveness.

The expanded JV will produce Cummins B, C and L Series four- to nine-liter mechanical and full-electronic diesel engines, covering a comprehensive power range from 100 to 370 horsepower. The engines manufactured by Dongfeng Cummins will meet the most stringent emission standards through Euro 3 and 4 in the automotive sector and Tier 2 and 3 in the industrial sector, which will bring the expanded company to the same technical level as European and North American markets. After the expansion, Dongfeng Cummins annual production capacity will exceed 130,000 units.

Along with Mr. Miao and Mr. Solso, the agreement was signed by Zhu Fushou, General Manager of DFAC, and Dr. Jong S Kim, Managing Director of Cummins East Asia/Korea, in the Great Hall of the People. This event marked the establishment of China's largest and most advanced production base in the mid-range and heavy-duty diesel industry. Top-level government officials and senior executives from DFM and Cummins were among the guests attending the ceremony.

The collaboration between the two companies represents the realization of three key elements of the Cummins mission, Mr. Solso told the audience.

"First, today's signing ceremony is a good demonstration of our mission to partner with key customers, like Dongfeng, to make sure they succeed. As the largest independent diesel maker in the world, Cummins is committed to establishing strategic cooperation with leading international partners such as Dongfeng, Komatsu, Iveco, New Holland, Case, Scania and Westport.

"Second, we want to exceed customer expectations by always being first to market with the best products. In this expanded joint venture, Cummins will transfer the latest and most advanced full-electronic diesel engine platform, meeting emissions standards up to Euro 4 in the automotive sector and Tier 3 in the industrial sector.

"Third, we demand that everything we do leads to a cleaner, healthier, safer environment. We feel proud to work together with Dongfeng on the CNG transit fleet project in Beijing and jointly contribute to the environmental protection of China's capital city. And this expanded joint venture will deliver our newest and cleanest products to the Chinese markets."

Dongfeng Motor and Cummins have a long history in the diesel engine sector.

Steve Chapman, Vice President, International, who has witnessed 18 years of cooperation between Dongfeng and Cummins, said in his remarks:

"Over 10 years ago, I remember sitting at a banquet with a mining customer from Northeast China following his agreement to purchase Cummins engines for his mining trucks. I asked him why he purchased Cummins engines. He said that there were three main reasons:

"First, Cummins has excellent products – durable and reliable. Second, Cummins is committed to investing its capital and technology to localize its products in China. The Company does not insist on just exporting to China. We invest in the country. Third, Cummins provides good customer support – parts, service and training.

"Based on this simple three-point strategy, our China business leadership met in 1997 to develop a vision for Cummins business in China. This vision targeted total sales, both imported and local JV product, of $1 billion by the year 2005. With the expanded cooperation today, Cummins is well positioned to reach that goal," he said.

Zhu Fushou, General Manager of DFAC, noted: "Combining the assets of B and C Series operations and expanding both sides' cooperation is of significant importance. The cooperation between DFAC and Cummins is a combination of two strong players and will lay a solid foundation for the rapid implementation of the 'Four Firsts' development plan of DFAC.

"Under the 'Four Firsts' plan, Cummins engines produced by the expanded joint venture aim to be the market leader in terms of sales volume, market share, added value and component supplier resources among China's mid-range and heavy-duty diesel industry," he explained.

The expansion will optimize the use of existing assets and avoid duplicate investment. All of the three major plants of the expanded JV are located on the same site in the Xiangfan Auto Industry Development Zone. Their products are Cummins B & C engines and major components, making the combination of the manufacturing equipment and facilities complementary.

After the expansion, the joint venture company will be able to further lower production cost and improve efficiency to greatly enhance enterprise competitiveness in the marketplace.

Through evergreen technology transfer, the expanded joint venture will continuously have access to the latest engine technology of Cummins. This will bring the company to the same technical level as European and North American markets and quickly upgrade the technology standard of China's mid-range and heavy-duty diesel industry. The expanded JV will include a local technical center to tailor its products to meet the various needs of local customers.

Additionally, the expanded Dongfeng Cummins will be supported by Cummins global production system in the areas of manufacturing, quality and management, which will enhance its competitiveness. In the meantime, Cummins comprehensive international service network will help the JV's export products enter overseas markets.

This latest expansion is the fourth major step in the cooperation between Dongfeng and Cummins:

1986: B Series license agreement.

1994: Dongfeng and Cummins invest in Shanghai Fleetguard Filter Company to produce Cummins Fleetguard filters.

1996: DCEC JV to manufacture the Cummins 6C engine.

2003: Expansion of DCEC to consolidate the Dongfeng B Plant and the Cummins Xiangfan Machining Company into DCEC. This company will be the same as other Cummins factories worldwide, producing the most advanced Cummins products.

Dongfeng Motor Company (DFM) was founded in 1969 and is one of the three largest auto groups in China. After more than three decades of development, Dongfeng now produces a comprehensive product line covering heavy, mid- and light-duty vehicles, as well as passenger cars with annual capacity of more than 500,000 units. Dongfeng employs more than 100,000 people with registered capital of $6.2 billion. In 2002, Dongfeng produced more than 400,000 units with sales revenue of $8.5 billion, 55 percent and 50 percent higher than the previous year, respectively.

Dongfeng Automobile Company Limited (DFAC) is a joint-stock company solely incorporated by Dongfeng Motor Company, and was founded through public placement in 1999. It owns one each of the following subsidiaries – automobile, diesel engine, casting and sales, and 50 percent of the shares of Dongfeng Cummins Engine Company Limited.

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