Delphi Automotive Systems is shelling out $871 million in cash to buy TRW's Lucas Diesel Systems and become a player in what it believes will be a strong growth market for diesel vehicles first in Europe and then elsewhere.
'We feel and have felt that the diesel engine, particularly in Europe, is going to be the propulsion system of choice' for those seeking better fuel economy and reduced emissions, Don Runkle, president of Delphi Energy & Engine Management Systems, said in an interview Tuesday, Nov. 23, after the deal was announced.
Runkle will oversee the new business, which will be renamed Delphi Diesel Systems once the purchase is completed sometime before the end of the year.
It is Delphi's first major acquisition since its spin-off from General Motors earlier this year. With $1.1 billion in annual sales, Delphi Diesel Systems will be the second largest producer of diesel fuel-injection systems for light-, medium- and heavy-duty vehicles. Germany's Robert Bosch Gmbh controls an estimated 50 percent of the market.
Other competitors include Denso International, which supplies engines to Toyota, and possibly Siemens International, which Runkle said has the 'wherewithal' to compete but is not yet in the market.
Runkle said sales are expected to grow to about $1.6 billion by 2004, spurred by advances in technology that are making diesel engines quieter, cleaner and less expensive, while providing better performance and more power.
Much of that growth is expected to be in Europe, where 25 percent of light-duty vehicles are diesel-powered. That number should grow to 30 percent by 2003 and to 35 percent by 2010, Runkle said. But Runkle also predicts that once the technology is proven in Europe, the diesel market in the United States and Asia-Pacific will expand as well. That likely will first mean the development of more diesel-powered sport-utilities and light-duty trucks.
Delphi's purchase comes less than a year after TRW acquired Lucas Diesel in its $6.53 billion purchase of LucasVarity PLC of the United Kingdom. TRW is selling the unit to help pay down debt associated with that purchase, TRW spokesman Jay McCaffrey said. Also, diesel engines are not a core business for TRW, he said.
All of Lucas Diesel's business is with non-GM companies. In 1998, more than 40 percent of sales were to French automakers PSA Peugeot Citroen and Renault SA, and Ford Motor Co. Delphi's non-GM revenue will rise to $8 billion with the acquisition. That's about 27 percent of its $30 billion in annual sales.