Allison Transmission invests in British engineering firm

Though plagued by debt, Allison Transmission recently plowed millions of dollars into experimental technology that could lead
to new products.

The company entered a $10.4 million deal in March with Torotrak plc, a British firm that’s been trying for more than a decade
to bring its gearless transmission to market.

"When I saw Allison tie up with this company called Torotrak, I think they’re looking toward the future," said Jay Baron,
president of the Center for Automotive Research in Ann Arbor, Mich.

The deal gives Indianapolis-based Allison a 10-percent stake in Torotrak, plus the right to license the British firm’s technology.
The deal includes options for exclusive sales and manufacturing rights in the medium-truck and bus market—the field Allison
currently dominates.

Under a separate agreement for engineering, Torotrak said it will immediately begin development work on a new medium-duty
truck transmission.

Torotrak said in a press release that the deal is its largest to date. "This is a very significant endorsement of our technology,"
CEO Dick Elsy said in the release.

Indeed, the immediate benefit goes to Torotrak, a London Stock Exchange-traded company with 62 employees. Torotrak reported
2008 revenue of $5.5 million and an operating loss of $4.1 million.

The company has struck licensing agreements with major automakers in the past, but none of them mass-produced its "infinitely
variable transmission." Torotrak also has a joint venture, called Infinitrak, with Ohio power equipment-maker MTD. In 2008,
Infinitrak began producing the first saleable transmission to be used in a Cub Cadet lawn tractor.

The IVT, as it’s known in industry parlance, is a type of continuously variable transmission, or CVT. Because they’re gearless,
CVTs allow for fuel economy at higher speeds.

"IVT uses the same technology, but additional technology allows it to be effective at low speeds, as well as reverse," Baron
said. "Torotrak apparently has both these technologies available."

CVTs are used in some small cars, including the Toyota Prius, but Baron said they still lack the durability for use in larger
vehicles. Baron is optimistic the technology will come into wider use.

Infinitely variable transmissions have not seen the same progress, at least as a commercially viable product. "I think CVT
is just less complicated than IVT," Baron said. "Maybe IVT will catch up."

Allison did not announce its deal with Torotrak in the United States, and company spokesman Eric Dickerson did not respond
to a request for comment.

Allison’s fully automatic transmissions dominate the market for heavy-duty vehicles like garbage trucks, as well as medium-duty
delivery trucks and moving vans, but analysts said the company needs to diversify its product line.

Allison would face stiff competition in trying to put its fully automatic transmission in lower-weight trucks because the
product is so much more expensive than manual or automated manual transmissions, said Steve Tam, vice president of ACT Research
in Columbus, Ind.

If Torotrak’s IVT were successful, Allison could offer a product with 70-percent fewer moving parts, which means lower maintenance
costs. Torotrak also claims its transmission has greater fuel-economy.

Tam isn’t sold on Torotrak’s claims, however. "I’ve never heard of it, never seen it," he said. "It’s on the fringe right
now."

Thom Rein, whose firm Rhein Associates in Canton, Mich., follows the diesel engine and powertrain markets, also said commercial
success for the IVT seems a long way off.

However, he said, "Maybe Allison is covering its bases. It would be a smart move to develop some other type of drives, maybe
get into the different markets," Rhein said.

Investment firms Onex and Carlyle Group bought Allison from General Motors in 2007 for $5.6 billion. Credit rating agencies
have said Allison is at risk of defaulting on interest payments.