In The Headlines
Cummins Embraces Emission Control Tech to Gain the Advantage
In an American economy driven by tech startups and high finance, Cummins, the country’s leading diesel-engine manufacturer, has not only survived but thrived in heavy industry. Driven by global demand for its energy-efficient, low-emission engines, the company’s sales have soared since the end of the Great Recession; revenues jumped from $10.8 billion in 2009 to $19.2 billion in 2014. It operates in 90 countries, with almost 50% of its 2014 sales coming from overseas. In the U.S. and many other markets, it’s the company to beat in diesel. Says Larry De Maria, an analyst with William Blair: “Cummins arguably makes the best engines in the world.”
Cummins first found success riding the postwar boom; it is one of only 57 companies that have appeared on the Fortune 500 every year since 1955. But more impressive is how the company has sustained that success in a tumultuous time for U.S. industry. When many manufacturers fled to cheaper overseas labor, Cummins took a more sophisticated tack, investing in its domestic workforce and facilities while establishing fifty-fifty joint ventures abroad. And when many automotive companies fought Washington on clean-air regulations, Cummins embraced them—and then used its mastery of clean-tech diesel to build a moat around itself. “We like things where the business is hard to do,” says Rich Freeland, President and CEO of Cummins. “Only a few people can get there, and we think we can.”
In 1997, the Environmental Protection Agency (EPA) began investigating whether special shutoff switches in the company’s engines could be used to disable emissions controls. They could, apparently to the surprise and dismay of Cummins engineers. The next year the EPA forced Cummins and several other manufacturers to agree to reprogram the devices and sign an $83.4 million consent decree, the highest civil penalty in environmental enforcement to date. The EPA then moved forward the deadline for new, lower-emission engines from 2004 to October 2002. Some at Cummins wondered whether a company built on dirty, heavy-duty diesel could survive the EPA’s order, says Freeland who has been with the company since 1979. Cummins leadership considered suing, but eventually cooler heads prevailed, and rather than fight the EPA, Cummins decided to work with it. “We said we’d double down, because we thought there was a way to be different,” Freeland says. Cummins was, after all, the leader in diesel technology. If it could quickly meet the EPA’s new standards, it stood to reap enormous benefits.
Cummins set out to become the first diesel company to hit the EPA targets. In the early 2000s it implemented Six Sigma management systems and ended the wildly popular (but profit-reducing) practice of offering discounts on most sales. Above all, he poured money into research and development, traditionally a weak spot for diesel makers. From 2002 to 2007, Cummins boosted annual R&D spending by 60%, to $321 million, with almost a quarter dedicated to meeting future EPA engine standards. That emphasis yielded important new technologies, including advances in “deep spray” injection, a process that reduced engine emissions without sacrificing efficiency by pushing fuel farther into the cylinder. Cummins did indeed hit the EPA’s standards first, and saw it pay off almost immediately.
Annual revenues have more than tripled since 2002 when that EPA deadline kicked in, and experts within and outside the company say Cummins’ early commitment to a low-emissions strategy will help it maintain its lead as regulations ratchet up over coming decades. “The on- and off-highway emissions standards were the best thing that ever happened to Cummins,” says Mike Brezonick, Editor-in-chief of Diesel Progress magazine. “They make such better engines now. It was the equivalent of the Manhattan Project.” The company also controls about 41% of the North American market for after-market components that lower emissions on other companies’ engines, a huge new source of revenue.
Cummins’ clean-engine investments mesh in important ways with its other major strategic initiatives of the past 15 years—its rapid growth overseas. The company has opened dozens of new foreign joint ventures and deepened its investments in East Asia and Latin America. By 2005, China and India alone were generating $1.9 billion in sales, almost 23% of Cummins’ total. Today, of its 54,600 employees, 63% work outside the U.S., up from about 50% a decade ago.
As developing nations improve their own clean-air standards, Cummins’ lead in meeting U.S. rules could leave it well positioned to take advantage. And its diversity, both in product lines and markets, has already bolstered Cummins enormously by severing it from the chains of cyclicality in the diesel-engine industry. During the downturn of the late 1990s and early 2000s, Cummins struggled and had unprofitable years, but it emerged from the Great Recession relatively unscathed, thanks to its broad exposure to the developing world.
Virtual Reality’s Potential Gets Real for the Travel Business
Virtual reality, or VR for short, might very well be the future of travel. Relegated to geeky fantasy for years, VR hardware is suddenly cheap, portable, and there for travel companies to take advantage of. Travel companies such as Thomas Cook, Qantas Airways, and Destination BC in Canada are creating their own promotional VR videos. And they say this is just the beginning. “We see virtual reality as an innovation that will change the travel business,” says Marco Ryan, Chief Digital Officer for the Thomas Cook Group, a U.K.-based tour operator that began testing VR content last year to boost sales. “The closer you get to the destination, the more excited you are to have that experience and buy that experience. VR is not changing what customers actually experience on a trip—at least not yet,” he adds.
Currently, in 10 select Thomas Cook store locations in the U.K., Germany, and Belgium, you can strap on a low cost VR headset and try your tour before you buy. Walk through the billowing blue curtains of a Santorini hotel balcony, or ride a helicopter above Manhattan’s skyline. This year Cook has seen VR-promoted New York excursion revenue increase 190%. The next step, according to Ryan, is to go beyond brick-and-mortar stores and deliver VR brochures into homes.
Last week, Thomas Cook went to Egypt to film the pyramids, six different hotel properties, and live-action biking on sand dunes. Next week, these videos will be ready for 3D travel marketing. By August, the company will be mass mailing 5,000 brochures, equipped with inexpensive (about $24 each) Cardboard headsets—both the name and the material. Using specs from Google, these open-source units will let targeted customers use their own smartphones to power custom-branded VR experiences via a downloadable app. “This is a huge sales tool that’s scalable and affordable,” says Ryan. More than 1 million of the Cardboard devices are currently in use, according to Google. (Google’s Cardboard headset can be purchased for about $24 on Amazon, and supports all smartphones.)
While the content race continues, Google is attempting to make creating VR as accessible as it is to consume with Jump, a do-it-yourself VR platform that means you do not have to invest millions of dollars in a camera setup. “We want this to be for everyone,” says Mike Jazayeri, Product Director for Google Cardboard. “But for travel companies in particular, Jump provides a very natural way to take video of the environments you’d want to visit.”
Given the popularity of video sharing on such social platforms as Instagram and Twitter and increasingly faster Internet speeds, it seems only a matter of time before 3D videos become the ultimate vacation selfie. Instead of “Look at this cliff” it’s “Look and feel exactly how terrifying it is to base jump off this cliff.”
But if you are Oculus CEO Brendan Iribe, the future is bullish. “We’re finally able to teleport to new worlds. We can experience the magic of presence—the feeling of actually being there,” he said during a June 11th press conference. Company officials declined to comment further on how they might seek to disrupt travel, but Facebook’s $2 billion acquisition of Oculus in March 2014 speaks volumes. And so did Facebook CEO Mark Zuckerberg, writing in a post discussing the announcement, “Imagine sharing not just moments with your friends online, but entire experiences and adventures—just by putting on goggles in your home.”
By 2020, tech advisor Digi-Capital projects the markets for VR and augmented reality to reach $150 billion. With a $2 trillion global tourism industry at stake, growth potential is huge. For those who cannot travel for whatever reason (budget, disability, or simply lack of time), strapping on a headset could put the top of Mt. Everest or the floor of the Grand Canyon as close as your couch—like an immersive Google Maps Street View. Which begs the ultimate question: Could a VR experience eventually become so real that it will replace actual trips? “Nothing can replace actually going to a destination, experiencing it yourself, and sharing your experiences with others,” says Michael Dail, Vice President for Marketing at Marriott Hotels. But as money drives innovation, it is sales and marketing that are driving VR in the travel industry now, so who is to say that the virtual future will not be passport free?
Citations
1. http://for.tn/1FFeMyx – Fortune
2. http://bloom.bg/1J8cyhy – Bloomberg
The Good News Is . . .
• The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to a tightening labor market. Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 267,000 for the week ended June 13th, the Labor Department said. It was the 15th straight week that claims held below 300,000, a threshold usually associated with a firming labor market.
• Adobe Systems, Inc., a leading provider of software tools, reported earnings of $0.48 per share, an increase of 29.7% over year-ago earnings of $0.37. The firm’s earnings topped the consensus estimate of analysts by $0.03. The company reported revenues of $1.2 billion, an 8.8% increase. Management attributed the company’s results to record revenues in its Creative Cloud, Document Cloud, and Marketing Cloud businesses.
• Cox Automotive, a provider of digital marketing and e-commerce services for the automotive industry, said that it would buy Dealertrack Technologies for $4 billion in cash. Under the terms of the deal, Cox will pay $63.25 a share in cash for Dealertrack. The acquisition is expected to allow the combined companies to provide a broad range of software solutions for the automotive industry, including car buyers, vehicle manufacturers, and loan providers. Dealertrack operates the industry’s largest online credit application network.
Citations
1. http://www.dol.gov/ui/data.pdf – US Dept. of Labor
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://adobe.ly/1SzFLn4 – Adobe Systems Inc.
4. http://nyti.ms/1fcxfw0 – NY Times Dealbook
Planning Tips
Guide to Special Senior Discounts on Auto Insurance
The latest figures from the Federal Highway Administration (FHA) show that drivers 65 years old and older accounted for 17.4% of the total driving population in the U.S. in 2013. But, according to a 2013 analysis by the Insurance Institute for Highway Safety, their involvement in crashes on a per capita basis is lower than any other age group. Insurers know that senior drivers have a wealth of driving experience, which actually gives them an advantage. Even if they are unable to respond as quickly to changing circumstances on the road, they are likely to have much more experience driving in a variety of dangerous conditions and adjusting appropriately to them. Insurers are eager to reward seniors for their good driving. Below are some car insurance discounts you may be eligible to receive. Be sure to consult your financial advisor before making any changes to your auto insurance.
Age or retirement discount – Many car insurance companies offer a general senior discount that will reduce your premium by a certain percentage just because you have reached a specific age, which can vary from one insurer to another. The name of the discount also differs depending on the company. For example, Allstate provides a Senior Adult Discount of up to 10% to drivers who are at least 55 years old and are not actively looking for full-time work. Liberty Mutual advertises that it offers a Newly Retired Discount to drivers who reach that employment milestone, regardless of age.
Low mileage discount – Drivers 65 and older log fewer miles on the road than any age group other than teenagers, according to 2015 statistics from the FHA. This is largely because older drivers are retired and do not commute to work every day. Insurers see this as a reduction in risk and will offer a Low Mileage Discount that cuts premiums. The parameters of low mileage differ with each car insurance provider, but generally a discount will be available for driving less than 7,500 miles each year, although the threshold could be as high as 15,000 miles. Until recently, most insurance carriers depended on the honor system, with drivers self-reporting their mileage. But now, many require devices to be installed in your vehicle to track your mileage.
Verified safe driving discount – Joining the nation’s largest senior organization, AARP, may come with car insurance savings. For example, AARP has partnered with The Hartford Financial Services Group for discounts on auto and home insurance. The program saves seniors an average of more than $400 per year on their auto insurance. If you were a member of the military, that may qualify you for additional savings on your car insurance. For instance, any senior who is retired from the military is eligible for up to 15% off their total insurance premium at Geico. Your auto insurance company may provide discounts based on your membership in other organizations.
Membership discount – Joining the nation’s largest senior organization, AARP, may come with car insurance savings. For example, AARP has partnered with The Hartford Financial Services Group for discounts on auto and home insurance. The program saves seniors an average of more than $400 per year on their auto insurance. If you were a member of the military, that may qualify you for additional savings on your car insurance. For instance, any senior who is retired from the military is eligible for up to 15% off their total insurance premium at Geico. Your auto insurance company may provide discounts based on your membership in other organizations.
The driver’s education discount – Many car insurance companies offer what is known as a defensive-driving discount to older motorists who take a course to brush up on their safety skills. One such course is available through AARP and costs as little as $15. While the class is designed for any age, in-class participants are typically in their 70s. The online version of the course trends about 10 years younger. According to AARP, 97% of students submitting surveys report that the course changed their driving behavior. The insurance discounts vary by state but can save you as much as $150 on your car insurance.
Citations
1. http://bit.ly/1H61XmM – AARP
2. http://bit.ly/1IW50LV – DMV.org
3. http://bit.ly/1KpCFiZ – Bankrate.com
4. http://bit.ly/1NenWXK – SeniorDiscounts.com
5. http://bit.ly/1eyYW22 – Insurance.com
