Deutz AG

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Deutz AG

Deutz-Mühlheimer Strasse 147-149
D-51057 Köln
Germany
Telephone: (49) (221) 822-0
Fax: (49) (221) 822-3525
Web site: http://www.deutz.de

Public Company
Incorporated: 1864 as N.A. Otto & Cie
Employees: 6,693
Sales: DM 2.46 billion ($1.26 billion) (1999)
Stock Exchanges: Frankfurt/Main
Ticker Symbol: DEZ
NAIC: 335312 Motor and Generator Manufacturing; 333611 Turbine and Turbine Generator Set Unit Manufacturing; 333618 Other Engine Equipment Manufacturing; 33312 Construction Machinery Manufacturing; 333131 Mining Machinery and Equipment Manufacturing

Deutz AG is one of Germany’s leading manufacturers of diesel and gas engines for the global market. The Deutz product range includes liquid and air-cooled high-speed diesel and gas engines with a performance of four to 7.4 kilowatts (kW) which are used in cars, tractors, ships, turbines, compressors, and pumps, to name but a few. Deutz is the main supplier of diesel engines for Swedish auto maker Volvo AB. The company’s industrial plant business division is organized under the umbrella of KHD Humboldt Wedag and builds industrial plants for the cement, mining, and aluminum industry. Deutz has sales and service offices all around the world. Deutsche Bank owns a 25 percent share in Deutz, while Volvo holds a ten percent stake.

Beginnings in 1864

In 1860 Jean-Joseph-Etienne Lenoir, a versatile inventor from Belgium-Luxembourg, built an internal combustion engine powered by household gas. Nicolaus August Otto, a German businessman with a knack for technical inventions, was intrigued by Lenoir’s idea. However, Otto had a different vision. Based on Lenoir’s principle, he ultimately wanted to burn a liquid fuel so he could use his engine in vehicles. While working as a traveling salesman for a Cologne-based wholesale trade company, 29-year old Otto started experimenting with an engine based Lenoir’s model in 1861. He discovered that the process could be improved significantly when the air and fuel mixture was compressed before it was burnt. This observation led to the idea of a process divided into four phases: intake, compression, combustion, and exhaust. Otto then discovered that the pressure generated by the combustion process was very powerful and hard to control. He refined his technology using atmospheric air pressure to generate power. In 1863 Otto started testing his “atmospheric gas engine” in a workshop in Cologne and secured several national and international patents.

On February 9, 1864, Eugen Langen observed Otto’s machine. Only a few weeks later, on March 31, the engineer and owner of a sugar factory signed a contract with Otto to set up the engine factory N.A. Otto & Cie. Backed up by his father and other businesspeople he knew, Langen provided the necessary funds to get the business up and running, while Otto contributed the machinery (in which he had already invested) and his innovative technical insight to further refine the technology. The small workshop of N.A. Otto & Cie in Cologne’s Servasgasse became the breeding ground for the world’s motorization. In 1867 Otto and Langen presented their atmospheric gas engine at the Paris World Fair where it was awarded a gold medal for the most economical propulsion machine for small business. One year later, three atmospheric gas engines were shipped to the United States. An important business relationship was established in the following year when Manchester-based Crossley Brothers acquired a manufacturing license of Otto’s invention for England. In 1869 businessman Roosen-Runge from Hamburg provided additional funding, and a brand-new factory was built in Cologne’s Deutz suburb on the east bank of the Rhine River. In 1872 the company was transformed into a public share company and was renamed Gasmotoren-Fabrik Deutz AG. At that time, German engineer Gottlieb Daimler joined the company as engineering director.

Otto worked continuously to refine his technology and finally in 1876 reached a breakthrough. The following year, he received a German patent for his versatile, new four-stroke engine with compression, and the company started marketing the new engines under the brand “Otto’s neuer Motor” (Otto’s New Motor). The bright economic prospects of Otto’s invention, however, attracted the attention of several potential competitors who began challenging Otto’s patent. In the meantime, Otto worked on an ignition process that would allow his motor to run on liquid fuel. In 1884 he invented low voltage magnetic ignition.

During this time, Daimler left Deutz after several differences of opinion led to tensions between him, Otto, and Langen. For one thing, Daimler was more interested in building more powerful, fast running engines than in the small and cheap ones Langen requested him to produce.

After producing a total of 2,649, the company ceased production of the atmospheric gas power machines. In 1886 the German central court Reichsgericht rescinded part of Otto’s patent. The inventor never really recovered from the bad news, feeling his reputation severely damaged. He died in 1891 at age 59 in Cologne. Four years later Deutz’s co-founder Eugen Langen passed away.

Diversification in the Early 20th Century

During the 20 years following Otto’s death, motor technology improved significantly. New combustion processes, electric ignition, and other improvements made gas and petroleum powered motors more efficiently and safely, expanded their performance and, in turn, increased their potential applications in industry, transportation, and agriculture. At the beginning of the 20th century Deutz had become a company with international connections. By 1886 the company was operating production plants in Vienna, Austria, Milan, and Italy, as well as in Philadelphia, and had business contacts in France and Russia. For the next few decades, Deutz focused on diversifying its product range and grew by means of a number of acquisitions. Deutz’s Philadelphia plant, the Otto-Gas-Engine-Works AG started producing Otto-motor-powered locomotives as early as 1894. Two years later the first model for use in the mining industry was introduced.

Another German inventor, Rudolf Diesel, had as significant an impact on Deutz’s development as Otto. Diesel had invented another type of motor and offered his patent to Deutz in 1892. Eugen Langen was concerned that the technology would not work and refused to manufacture the engines. Diesel found an interested partner in Heinrich Buz, Director of Maschinenfabrik Augsburg, where many changes were made from the initial concept. When the first functioning diesel engine was built in Augsburg in 1897 Deutz entered a licensing agreement with German manufacturer MAN AG to build the engine. Only two motors of the first series were finished and one of them, shipped to the United States, was the first diesel engine to be put into operation there. Deutz started experimenting with the second one and within a year developed its own model without the cross head that Diesel’s design used.

In 1901 Deutz canceled the expensive licensing agreement with MAN after that company issued another license to the Petersburg-based firm Nobel and hopes for huge export business with Russia dimmed. After Diesel’s patent expired in 1907, Deutz started the mass production of diesel engines and soon developed new models, such as a three-cylinder 75 PS motor for ships, and the 450 PS engine for the Berlin-Friedenau power station. In 1911 Deutz introduced the first diesel motor without a compressor which the company built in different variants with one to four cylinders and performance ranging from 16 to 500 PS.

After experiments to develop a locomotive that could be used in agriculture were not immediately successful, the company ventured into automobiles. In 1907 Deutz hired famous auto engineer Ettore Bugatti and made plans to build cars in Berlin. Several Deutz-Bugatti car models were developed and built in Cologne. However, the obstinate inventor was not willing to pay as close attention to the technical constraints of economical mass production as Deutz expected. In 1909 Bugatti left Deutz to set up his own business. The last Deutz-Bugatti cars were made in 1912.

New Leadership and the World War I Era

After Eugen Langen’s death, Deutz was left without a strong leader for almost a decade. New energy came from Adolf and Arnold Langen, two of his eight sons, who entered the company at the beginning of the new century. Adolf Langen soon became technical director and focused on modernizing the company’s product lines. Arnold Langen started working for the family business in 1903 and in 1919 became General Director. He successfully focused on modernizing the company’s technical and organizational processes and in the years before 1914 led the company to new highs. Arnold Langen was also able to maintain the atmosphere of a family business at a time when many large companies were becoming impersonal conglomerates.

Company Perspectives:

Focus on the Customer. DEUTZ has been a reliable and independent supplier for more than 130 years, one with ultra-modern engines, a comprehensive range of services, and a global service network. Because of our many years of experience we know our way around the world of our customers and know what matters to them. Successful action requires not only capital, good employees, and innovative ideas and products, but also loyal customers. They are the most important asset for the long-term success of our company. We therefore direct our every action towards making our customers successful in their markets. The customer is and always will be the strictest measure of our efforts. “Knowing it’s DEUTZ”—our customers can rely on that, all over the world.

In 1906 Peter Klöckner was elected to the Deutz board of directors. Members of the Langen family had become acquainted with Klöckner through their joint work at the board of directors of the Schaaffhausenscher Bankverein in Cologne, the leading bank for industry in the Rhineland. The 43-year old member of a ship-building family in Koblenz had a reputation as an experienced troubleshooter and manager of big companies. Soon Klöckner became the driving force behind Deutz’s further development. A forward-looking man, Klöckner envisioned his own industrial empire; Deutz became part of his plan. When he entered the company in 1907 Klöckner acquired ten Deutz shares; by 1914, however, he owned 7.6 percent of the total share capital, while the Langen family owned about 13.8 percent and the Otto family 10.3 percent.

By Deutz’s 50th anniversary in 1914, its motors for use in industry, agriculture, and in small ships had earned the company an international reputation. It employed a work force of more than 4,000. Diesel motors made up roughly one-third of the company’s sales, and about half of the company’s production was exported. Deutz’s smaller diesel motors became especially popular and were also produced for the United States in Philadelphia. However, up until World War I, the company struggled with slow payments from its customers, and its total accounts receivable more often than not equaled its total sales.

The war hit the company unexpectedly in August 1914. Sales dropped by 40 percent in that business year. For several reasons Deutz did not initially receive many orders for the German war effort. Later the company started making shells and still later locomotives for the military. Finally, the company began producing Argus motors for airplanes but ceased production right after the war ended.

Becoming Part of the Klöckner Concern in 1938

In 1919 Klöckner became vice-president of Deutz board of directors. Two years later Deutz took advantage of an opportunity to work with Motorenfabrik Oberursel near Frankfurt/Main, one of the company’s main competitors. Deutz took over the production of all motors that matched the company’s existing product line while a new production line of middle-sized two-stroke diesel motors, especially for ships, was started in Oberursel. Since the company’s product range by far exceeded gas motors, Gasmotoren-Fabrik Deutz was renamed Motorenfabrik Deutz in 1921.

The costs of further technological development and company expansion exceeded the means of the founding families. Peter Klöckner financed a part of the expense with the necessary capital infusions. By May 1922 he owned almost 30 percent of Deutz, and after the tidal waves of hyperinflation had receded Klöckner had become the company’s majority owner, and he took over as president of Deutz’s board in 1924. The year before, Klöckner had reorganized all his firms under the umbrella of Klöckner-Werke AG, and this group included five ore mines, two big foundries, and three iron and steel production plants. In 1924 Deutz entered an agreement with Maschinenbauanstalt Humboldt AG, which had fallen into financial trouble. After several years in the red, Humboldt, with partner Deutz, turned a small profit once again in 1929. While orders for motors were on the rise at Deutz, Humboldt specialized again on its core business: machines and equipment for processing coal, ore, and minerals.

Finally, on October 21, 1930, the three companies—Deutz, Humboldt, and Oberursel—merged to form Humboldt-Deutzmotoren AG. Two years later, in the middle of a severe company crisis caused by the worldwide economic recession, the plant in Oberursel was shut down temporarily. However, as a result of Klöckner’s initiative, Deutz managed to survive by accepting large orders from the Soviet-Russian government that kept the company going for two to three years. After the serious crisis of the early 1930s was overcome, Dr. Arnold Langen retired in 1936.

In the meantime Deutz started another venture into vehicles—this time into trucks. In July 1933 Deutz management decided to build a model series of 50 trucks. Negotiations to collaborate with other firms—such as Bussing, Adler, and Opel—failed, and a potential takeover of Hansa-Lloyd’s truck division was deemed too financially risky. However, when Ulm-based truck and fire extinguisher maker C.D. Magirus was willing to cooperate in 1935, Klöckner did not hesitate to affiliate with the company, and Deutz took that company over the following year. Finally, in 1938 Klöckner integrated Humboldt-Deutzmotoren AG into his empire. In that year the company was renamed Klöckner-Humboldt-Deutz AG (KHD).

Dynamic Expansion Follows World War II

By 1938 Deutz had become Germany’s largest diesel engine manufacturer. After the consolidation into KHD, Klöckner’s group ranked among Germany’s top corporations and employed 18,000 people. When World War II began in fall 1939, Deutz was not a first choice for the production of war materiel, as its motors were too small for military ships and tanks. Deutz did begin producing bigger motors for the German Marines and later an artillery tractor for the German Army. Demand for the fire extinguishers made in Ulm rose as German cities began suffering Allied air raids. Peter Klöckner did not live to witness the destruction of his plants; he died on October 5, 1940.

Key Dates:

1864:: N.A. Otto & Cie. is founded in Cologne, Germany.
1869:: The company is renamed Langen, Otto & Roosen.
1872:: Company is transformed into a public share company and is renamed Gasmotoren-Fabrik Deutz AG.
1921:: Cooperation with Motorenfabrik Oberursel starts and name is changed to Motorenfabrik Deutz AG.
1930:: Company merges with Maschinenbauanstalt Humboldt AG and Motorenfabrik Oberursel to become Humboldt-Deutzmotoren AG.
1938:: The company is integrated into Peter Klöckner’s conglomerate and renamed Klöckner-Humboldt-Deutz AG (KHD).
1953:: KHD becomes independent again.
1992:: KHD AG is transformed into a management holding company.
1997:: The company is renamed Deutz AG.

After World War II Peter Klöckner’s son-in-law, Dr. Günter Henle, joined the Deutz top management. About three-quarters of Deutz production facilities were destroyed. The Oberursel plant, which survived the bombings, was dismantled and the production halls taken over by American troops. In mid-1945 Deutz was allowed to resume the production of motors and replacement parts for civil use, but only a few months later the permit was withdrawn. For the next few years the Occupation Forces allowed Deutz to make scarcely any motors. The Humboldt plant in Kalk repaired railway bridges and produced machinery and replacement parts for mining equipment.

Things finally changed for the better with the currency reform in West Germany in 1948 after which the German economy gradually normalized again. Deutz went back to making the air-cooled diesel motors that the company first developed at the request of the German military. In contrast to the mostly water-cooled models on the market, the air cooled version was able to function securely under extreme conditions, such as very high and very low temperatures. Deutz had started mass production of air-cooled diesel motors in 1944 and resumed it in 1949. By 1954 the company had made some 100,000 of them in Cologne and Ulm. Due to unparalleled enthusiasm among all its employees to rebuild the company, Deutz exceeded its prewar results in 1951. That year the company had 15,700 people on its payroll and generated DM 292 million in sales.

The following three decades were characterized by continuous growth, mainly through acquisitions and international expansion. In 1953, as dictated by the plan of the Occupation Powers for the reorganization of the Klöckner companies, Klöckner Werke became Klöckner & Co., and the merger agreement with Deutz was annulled, making Klöckner-Humboldt-Deutz (KHD) independent once more. However, Klöckner & Co. continued to hold a major share in KHD.

Also that year a cooperation agreement was signed between KHD and Mainz-based Vereinigte Westdeutsche Waggonfabriken AG, a manufacturer of railroad cars. Six years later that company merged with KHD. Other acquisitions included that of combine harvester maker Maschinenfabrik Fahr AG in Gottmandingen in 1968; a majority share in Bochum-based industrial equipment manufacturer WEDAG Westfalia Din-nendahl Gröppel AG in 1969, which was taken over in 1973; and the takeover of large engine maker Veorde in Dinslaken in 1971. In 1975 KHD’s Magirus truck manufacturing arm was merged into IVECO, a joint venture with Italian car maker Flat, and sold off to Flat five years later for about DM .5 billion. In 1985 Deutz acquired a majority share in Motoren-Werke Mannheim AG (MWM), a manufacturer of a full range of water-cooled motors.

Deutz’s international activities included the establishment of subsidiaries in the United Kingdom, Australia, Morocco, the United States, and Argentina during the 1950s, in Japan in 1963, and in Singapore in 1970. Exports reached 40 percent of sales in 1964 and continued to grow during the following decades. In 1985 Deutz took over of the agriculture equipment arm of American competitor Allis-Chalmer Corporation and founded Deutz-Allis Corporation in Milwaukee, Wisconsin.

Struggling in the Mid-1980s and 1990s

In its 125th anniversary year, 1989, Deutz was represented in 135 countries around the world and had working agreements with 25 companies in 16 countries. The company was the world’s top manufacturer of air-cooled diesel engines and was involved in various activities in addition to motors, including the development of tractors, aircraft technology, industrial equipment and plants for the chemical, raw materials, and food processing industries, and small power generators. However, the following decade turned out to be a turbulent chapter in the company’s history.

The Deutz horizon began to darken in 1987 when the company slipped into the red for the first time. Stagnation in various segments of the world market that began in the mid-1980s were mirrored in the company’s continuously shrinking sales and profits. The North American market for farm equipment which had been suffering a serious crisis dropped significantly again after a severe drought in 1987. The financially pressured governments in many countries shifted their orders away from new plants and equipment, opting instead to modernize the existing infrastructure. Demand for processing plants from OPEC countries also started drying up. At the same time, production, development, and organizational costs for Deutz’s diverse portfolio had gone through the roof. After it reported a loss of DM 285 million in 1987, Deutsche Bank took over the share majority from the Henle family, Klöckner’s heirs. The company entered a long period of restructuring in 1988, first under the leadership of Kajo Neukirchen, an experienced troubleshooter who later became CEO of Metallgesellschaft AG. During these years the number of Deutz employees melted from about 27,000 in 1986 to 13,000 in 1991.

The company was divided into strategic business divisions in 1989, and the production subsidiaries Deutz Argentina S.A. and Deutz-Allis in the United States, together with other subsidiaries, were sold off. By 1990 the company was out of the red. That year an organizational and production renewal program was developed and carried out over the following years. KHD AG became the management holding company for its nine legally independent business divisions. A brand-new state-of-the-art DM 600 million production plant opened in Cologne-Porz in 1993. However, sales started dropping again because of a recession in the machine building industry, and the capacity of the new facility turned out to be overly optimistic. In 1994 the agriculture business division which made tractors and farm machines, Deutz-Fahr, was sold to make up for new losses amounting to DM 300 million in that year.

In December 1995, as the financial picture for Deutz had begun to clear, a fire destroyed several buildings at Deutz Service International. Early the next year, it became evident that Deutz subsidiary KHD Wedag AG had produced huge losses in connection with three cement plants it had built in Saudi Arabia, and had manipulated financial reports to mask the disappointing results. Deutz was headed for bankruptcy were it not for a concerted effort and financial backing from the company’s shareholders, especially Deutsche Bank AG, the state North-Rhine Westphalia, the city of Cologne, its employees (who agreed to cut their wages, salaries, and pensions), and from sales of company assets.

The company was renamed Deutz AG and restructured again to focus on its engine business. The group’s subsidiaries were integrated into Deutz AG, and KHD was liquidated. The only exceptions were Motoren-Werke Mannheim AG which remained legally independent until 1998, and the two subsidiaries of the Industrial Plant division, KHD Humboldt Wedag AG and INDUMONT GmbH, which were slated for sell off. In 1998 the company’s fate seemed to turn around again when Swedish auto maker Volvo AB signed a contract with Deutz, making it Volvo’s main supplier of diesel motors for construction equipment, trucks, buses, marine, and other applications. In turn, Volvo bought a ten percent interest in the company. Another contract was signed with Berlin-based Adtranz DaimlerChrysler Rail Systems GmbH in January 2001. To honor N.A. Otto, the man who had laid the foundations for Deutz, and his impact on the worldwide automobile industry, the inventor was inducted into the Automotive Hall of Fame in Detroit in October 1996.

Principal Subsidiaries

Deutz Corporation; KHD Humboldt Wedag AG; DEUTZ ENERGY GmbH; Humboldt Wedag Inc.; KHD Guss GmbH; DEUTZ MWM Fahrzeugmotoren GmbH; DEUTZ Canada Inc. (Canada); KHD Deutz of America Corporation; Ad. Striiver KG (94%); Humboldt Wedag ZAB GmbH); Motoren-Werke Mannheim AG (99.9%); Maschinenfabrik Fahr AG (99.8%); HUMBOLDT-LOTZ Elektrotechnik GmbH; HUMBOLDT-ZAB Zementanlagenbau GmbH; Erz- und Kohleflotation GmbH.