DieselTech: Product of Italy

For years, VM Motori S.p.A. (VM) of Cento, Italy, has specialized in the development and manufacture of automotive diesel used by different OEMs to power special vehicles such as SUVs. The company, now owned 51 percent by Penske Corp. and 49 percent by DaimlerChrysler, is operating in the international marketplace as an independent engine supplier for the automotive industry, which is by far its most important market segment — even if engines for agricultural, industrial and marine applications also represent a considerable share of its business.

Mr. Liu Shanbo, general manager of JMCG (left), and Mr. Vilmo Ferioli, vice president and managing director of VM Motori (right), sign the JMCG license agreement at the VM Motori headquarters in Cento, Italy.

VM has granted licenses to build engines developed in Cento to Hyundai in South Korea in 1999, and this year to GM Daewoo Auto and Technology Corp. in Korea in March and most recently, to Jiangling Motors Co. Group (JMCG) in the People’s Republic of China in June.

Automotive Industries had the opportunity to sit down with Mr. Vilmo Ferioli, vice president and managing director of VM, to discuss in detail the terms of these license agreements and the philosophy backing up this policy.

Ferioli explains that VM Motori manufactures some 60,000 diesel engines per year. With a high level of flexibility and adaptability they satisfy the niche market needs of major OEMs in the traditionally strong European diesel sector.

Progress in the automotive diesel engine field is fast growing and a product gets old in less than five years due to technological developments and more and more stringent emissions regulations, says Ferioli. In order to be able to continually offer technically advanced and competitive products, every year VM invests over 7 percent of its sales turnover in ER&D.

“As part of our strategy to become a major player in the global market, VM does not want to give up the opportunities being offered by the fastest growing markets, such as South East Asia, wherein it is essential to manufacture the engines locally,” says Ferioli.

“Although diesels today are not as popular as they are in Europe, demand in China will significantly increase over the coming years. In order to not ‘miss this train,’ VM decided to sell technology to meet the market needs, thus permitting VM to expand its presence on the global scale whilst at the same time having access to new important financial resources needed to invest in new strategic products.”
 
In 1999, VM granted  Hyundai the license to manufacture the 3-cylinder, 1.5L R315 and 4- cylinder, 2L R420 diesels. These engines were designed in 1998, incorporating the latest technology then available — 4 valves per cylinder, common rail injection system, etc.

Due to the large volume of business in the 2.0L category, all major automobile manufacturers have their own engines. There is little or no niche market demand for this size of engine.

JMCG licensed the 2.8L 16 valve R 428 DOHC (below) and the 2.5L 16 valve R425 DOHC diesel engines as part of an €80 million program it signed with VM Motori in June.

Consequently, these engines do not form part of the VM production plan. Such evaluation is obviously different for Hyundai as it is presently producing these engines at a rate of 240,000 per year. The Korean company was able to step into the diesel-powered automotive market years ahead by acquiring VM technology rather than developing engine and other technology in-house. VM received a down payment and royalties for granting this license. Under terms of the agreement, Ferioli explains, Hyundai can manufacture the engines only to power its vehicles, while VM is free to grant other license agreements also in Korea, as has happened with GM Daewoo.

Hyundai vehicles powered by VM diesels, from the small Matiz to the prestigious Santa F?, are sold mainly in Europe (which has 80 percent of the world diesel automotive market), Japan and also in other Asian countries, as well as their own home market.

The GM Daewoo agreement, signed by Roger Penske, president of VM Motori with Nick Reilly, president of GM Daewoo last January, concerns basically the same engine family licensed to Hyundai but with appropriate upgrades and adaptations to suit the specific vehicle needs.

The 1.5 and 2.0L engines for GM Daewoo incorporate the latest technology features developed over the last five years; since the Hyundai license was granted. One of the most interesting upgrades is the introduction of a variable geometry turbocharger (VGT) which allows a significant increase in power output (the 2.0L engine is rated at 150 hp) whilst at the same time, in conjunction with the latest 1600 bar common rail components, lowering engine emissions thus enabling the more stringent EU.4 exhaust emission levels to be met. Furthermore, the engines will be tuned to optimize the characteristics and requirements of each vehicle application.

VM diesels were selected after evaluation of similar engines available on the marketplace. GM Powertrain will contribute to the new project with the supply of other key driveline components.

The new 19,200-square-meter engine plant to be constructed next to the GM Daewoo Kunsang automobile facility is due to start engine production in early 2006 at a rate of 250,000 engines per year. The plant will hire 250 new employees. Production lines will be 90 percent automated while assembly lines will have a 40 percent automation rate.

According to GM Daewoo, total investment including engineering development for the new engines should be close to €320 million over the lifetime of the program.

GM Daewoo will use these engines on its full range of vehicles starting with the new crossover SUV based on GM’s light-weight Theta architecture. For this application, the VM engines will be fitted with a particulate filter as well.

The June 2004 license agreement with Jiangling Motors Company Group (JMCG) calls for the production of VM’s 2.5 and 2.8L automotive diesels at the new JMCG plant of Nanchang, in the Chinese province of Jianxi. Production capacity of the new plant will be of 60,000 engines per year starting from 2006. Total investment, including development costs of the new engines is estimated in €80million for the whole program.

The 2.5 and 2.8L, direct injection common rail (1350 bar pressure), 4-cylinder, doubleoverhead camshaft engines were launched by VM in 2001. Using standard waste-gate turbochargers with the necessary EGR emission control systems, the engines can readily achieve EU.3 exhaust emission limits.

JMCG will use these engines to power its SUV, minibuses and light commercial vehicles. According to Mr. Liu Shanbo, general manager of JMCG, China needs these modern, efficient, high performance VM engines to meet the new restrictive emission norms that will soon come into force in the country.

The company has advanced production lines with flexible machining centers. Thanks to joint ventures with Ford and Isuzu, JMCG has introduced and continues to use advanced production technologies and management systems while improving its sales, purchasing, logistic and product development organization. JMCG has sold 61,374 vehicles in 2003, and will reach a volume of 80,000 units in 2004. It plans to surpass 100,000 mark in 2005.

The size of this agreement is very small if compared to the two Korean agreements just described, however, as Ferioli explains, the perspective is much greater.

JMCG is a group of companies based in the Jianxi Province. Although the primary activity is automotive related, various JMCG subsidiaries also manufacture components and agricultural equipment. Ferioli looks at this agreement as a starting point to develop further business together. High-tech engine components could be developed together with the Chinese partner to European quality standards to be competitive on the international marketplace and a license could be granted for the manufacture of VM industrial engines in China.