Eaton: AMT Is a Strategic Option

An interview with Kenneth F. Davis, president of Eaton’s Vehicle Group, Howard Liu, president of Eaton’s Vehicle Group Asia Pacific, and John M. Coll, vice president, marketing department of Eaton’s Vehicle Group.

Gasgoo.com: Last year, more than 1 million heavy-duty trucks were sold in China, but the sales channels were overburdened with inventory. How do you see the future development trend of the heavy-duty truck market?

Howard Liu: Some people say that heavy-duty truck sales in China will decline this year because of an inventory of 200,000 units in this market. But I think the sales this year will be flat, with a 5% fluctuation. The eventual trend will be determined by the intensity of the country’s macro-regulation and its control over the real estate market. In the next three to five years, the sales of heavy-duty trucks will grow slightly, but not as sharply as that in the past two years. There are two reasons for this: the first is the impact of macroeconomic policies, and the second is that the replacement demand will be higher when truck possession reaches a specific ratio. In fact, the Chinese market is very hard to predict.

Gasgoo.com: AT and AMT are two different technological paths and have their respective advantages. While Allison and Voith emphasize AT, Eaton is an AMT leader in the American market. Why has Eaton chosen AMT as a strategic priority?

Kenneth F. Davis: Eaton has sold more than 300,000 AMT products in America. In terms of market segments, we have different products to meet corresponding market demands, either for highway or for machinery. China has a vast AMT market prospect and we hope to have more opportunities to cooperate with Chinese plants.

Eaton strategically focuses on AMT for two reasons: firstly, it reduces manual gear changes, making it easier for drivers to operate, in couple with the development of engines and the growing demand for fuel efficiency, AMT will be a natural choice; secondly, AMT requires supports from many aspects such as better auxiliary equipment for engine, software integration, excellent transmission system match, and the long-term advantages of technology and experience, which is Eaton’s strength.

Gasgoo.com: How do you see the issue that AMT’s development in China will be affected by its high cost?

Kenneth F. Davis: AMT’s development speed in China is determined by whether the technology has been proven and can bring about excellent cost benefit. Localization can reduce cost. But how much the cost will be reduced, to the level acceptable to all people or to a small fraction of people, is determined by how the market will value AMT and the value it brings about. Eaton’s strength lies in its rich experience in hardware, software and integration of the whole vehicle system.

Now most people believe AMT will have a good development prospect, a trend which is favorable for us. Meanwhile, we must also work hard to cut cost, because the extent of cost cutting will impact the degree of technology acceptance.

Gasgoo.com: Has Eaton cooperated with China’s indigenous brands in developing products targeted on the Chinese market?

Kenneth F. Davis: Eaton and Chery have a cooperation project in supercharger. We made a special design for Chery’s 1.3-liter and 1.6-liter engines. This is a very interesting cooperation. This targeted product design can further enhance value, engine performance and fuel efficiency. It is designed exclusively for Chery. In addition, we have also cooperated with Foton and other OEM manufacturers in hybrid power system, and hope to bring hybrid power system to China’s bus market.

Gasgoo.com: What progress has Eaton made in local procurement and what is the rate of its local procurement?

Kenneth F. Davis: We have worked hard all the time to improve our supply chains in China. Eaton has more than 10 different products in China, including truck and auto parts. Each product has a different rate of local procurement, but the overall rate is very high.

Gasgoo.com: How does Eaton look at the strong performance of China’s auto market? Does the Chinese market have special demands that are different from other markets?

John M. Coll: We have high expectations of the Chinese market, either for commercial vehicles or for passenger vehicles. China has become the largest auto market in the world, with a very fast growth and a huge potential. The Shanghai Auto Show is also the largest one I have ever participated. Chinese products are relatively fast from design, production to sales, and customers also have higher demands for us. Eaton has always been emphasizing a full understanding of market and customer demands.

Gasgoo.com: New-energy vehicles have not been commercialized in the area of passenger vehicles. Will new-energy commercial vehicles outpace or lag behind new-energy passenger vehicles?

John M. Coll: On the one hand, it depends on the value positioning and cost control of the whole product range, which means whether their costs can be reduced to the level that can be commercialized. On the other hand, it depends on the infrastructure development. Recharge stations are of great significance. Of the hybrid or electric commercial vehicles, buses are easier to popularize because they can return to their stations for recharging of the day. In general, new energy represents a mega-trend.