Record Cummins Profits Overshadowed by Recall of 500,000 Truck Engines Over Emissions

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Cummins did not specify which engines are the subject of a recall affecting 500,000 trucks; the company’s engines are options with most major truck manufacturers.

Cummins Inc. reported record second quarter earnings this morning, and this news was immediately eclipsed by an engine recall that has already affected 230,000 vehicles, mostly Ram heavy-duty pickups, and will now encompass 500,000 models. additional heavy trucks.

The recall is related to a catalyst that is degrading faster than expected, allowing Cummins engines to exceed emission control limits. The defective devices were first identified through Portable Emission Measurement Systems (PEMS) testing by the California Air Resources Board (CARB).

Cummins (NYSE: CMI) will voluntarily recall some 500,000 trucks with its engines to replace defective catalysts. CARB stressed that this recall is due to a degrading device and not a deliberate attempt to cheat emissions standards, as seen in the Volkswagen emissions scandal.

Cummins stock closed the day up $ 5.74 to $ 142.81 per share.

“It should be noted that the cause of the excessive emissions was purely mechanical – the faster than expected degradation of the catalyst – and not the product of a ‘defeat device’ or cheating on the tests as was the case with 2009-2015 Volkswagen 2 and passenger cars and SUVs with 3.0-liter diesel engines, “CARB said in a statement.” Catalysts that degrade also do not pose a safety concern and do not affect families. current model year Cummins engines. “

The affected engines were produced between 2010 and 2015. CARB initially discovered that the issue affected 232,000 Ram 2500 and 3500 vehicles as it began emissions testing in 2016 as part of its compliance program. heavy vehicle use, which included vehicle testing for fleet owned vehicles and rental vehicles. Ram vehicles were recalled in 2016 and 2017 after Cummins performed internal testing and confirmed the CARB results.

According to Jon Mills, Cummins’ director of external communications, the new recall will unfold in two phases.

“We have developed the plan proactively and in collaboration with CARB and EPA and it is in the best interest of our customers and the environment,” Mills told FreightWaves in an emailed statement. “The recall will take place in 2 phases – heavy duty starting in August and medium duty next March (2019) to ensure we have parts available and to provide optimal service and support. “

The first phase includes certain ISX12 and ISX15 engine families from the 2010-2013 model years. The second phase will include the ISL9, ISC8.3 and ISB6.7 engines from the 2010-2014 model years.

CARB said owners will receive letters with instructions on how to replace their catalysts or receive reimbursement for the cost of the replacement. The second phase begins in March 2019. Catalyst replacement is required for vehicle owners to renew their California DMV registrations on most engine families.

In its earnings call Tuesday, Cummins announced a pre-tax charge of $ 181 million related to the recall. “This campaign will focus on the performance of a post-treatment component in certain road products manufactured between 2010 and 2015 in North America. The company has entered into an agreement with the appropriate regulatory bodies regarding our planned actions to run the campaign and has fully covered the estimated costs, ”he said.

PEMS is a portable measuring system used by CARB to measure emissions when vehicles are operated under normal conditions. Testing of vehicles with Cummins engines found that selective catalytic reduction (SCR) systems release nitrogen oxides (NOx) beyond regulatory limits.

According to CARB, the same problem has been found with around 60 “engine families” under the Cummins name.

“Increased vigilance and testing led directly to a positive result. Our new in-service heavy-duty compliance program ensures that heavy trucks and other trucks already in service meet required emissions standards in the lab and on the road, ”said Mary D. Nichols, President of CARB. “Our portable test equipment tells us exactly how clean a truck is when it actually works in the real world: pulling a full load and driving on the roads and in the neighborhoods where people live. “

Earlier today, Cummins reported second quarter revenue of $ 6.1 billion, up 21% from the same quarter in 2017 and a new quarterly record. Sales in North America increased 22%. Second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) were $ 897 million, or 14.6% of sales, compared to $ 764 million or 15% of sales a year ago.


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