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Speech to Rocky MountChamber of Commerce

January 30, 2007-- FINAL

Thank you, Mayor Turnage, for that kind introduction.It is an honor to be here today. Rocky Mount has always been one of my favorite company locations to visit because of the friendliness of the community and its people.

This afternoon I would like to share my thoughts on several topics … including the impact of globalization on our country and the readiness of American manufacturersto meet the demands of today’sinternational economy.

How we deal with these issues locally is of critical importance to Cummins, as well asto the long-term health and success of the communities where we do business, like Rocky Mount.

I’ll also announce exciting plans for Consolidated Diesel Company – known to all of you as CDC – the 50/50 joint venture partnership between Cummins and CNH.

But first, let me take a minute to briefly describe Cummins for those of you who may not be familiar with us.

We are a global company, headquartered in Columbus, Indiana. We serve customers in more than 160 countries through a network of 5000 distributor and dealer locations.

Our 35,000 employees generated more than 11 billion, 300 million dollars in sales in 2006. A little more than half of those sales were made outside the United States.

We produced almost 850,000 diesel engines last year, with a little less than half of those manufactured outside the United States.

While Cummins’ rapid growth in the post World War II era was driven by the North American heavy-duty truck market, that business is now less than 15 percent of our sales.

Today, our products range from small engines for equipment like irrigation pumps, fork lifts and home generators … to medium and heavy-duty engines for pickup and Class 8 trucks -- the big highway haulers … to large engines for mining equipment and oil and gas and power generation applications.

We have a global power generation business … and a components business that manufactures and sellsfiltration products, exhaust aftertreatment systems, turbochargers and fuel systemsto Cummins’ competitors, as well as for use in Cummins engines …and a worldwide distribution business that serves the broad range of Cummins products.

Cummins has 16 businesses in China and has been in that country since 1975. We’re the third largest diesel engine supplier in China, with annual shipments of 120,000 and more than 850,000engines in operation there.

We have a similar involvement in India, with 10 businesses and a 40-year history in that country.

Cummins is the largest diesel engine supplier in India, with annual shipments of more than 75,000 and more than 350,000 engines in operation.

The sales of all our businesses in China and India were each over

$1 billion dollars in 2006. The vast majority of these sales stayed in these countries.

Also annually, Cummins exports more than 2-and-a-half billion dollars’ worth of products from the United States. We are one of the largest manufacturing exporters in the U.S.

Along with our broad global presence, Cummins has a reputation for delivering high-quality, technologically advanced products to our customers.

We are a leader in developing technologies to reduce diesel engine emissions, with a focus on ensuring that everything we do leads to a cleaner, safer, healthier environment.

On January 23, we announced that the new Dodge Ram 6.7-liter Cummins turbo diesel engine meets the world’s toughest emission standards for oxides of nitrogen – the U. S. 2010 standards – three years early.

Our long-standing commitment to research and development is part of our internal fiber, and has played a key role in our ability to sustain growth through technical innovation and partnering with customers to make sure they succeed.

In June last year, CDC– of which Cummins is the managing partner -- celebrated the manufacture of its 2.5 millionth engine since production began here more than 23 years ago.

Over the years,CDC has been recognized bycustomers and local and state groups for its community activities and safety initiatives.

You’ll find engines manufactured at CDC in tractors, combines, backhoes, medium and heavy-duty trucks, buses, generator drives, power units, construction equipment and logging and marine applications. CDC also makes major engine components used in other Cummins facilities. Fourteen percent of CDC’s products are exported.

1600 employeesfrom Rocky Mount and five surrounding counties form the backbone of CDC’s operation.

63 percent of our employees are black and 33 percent are white, with small percentages of American Indian, Asian and Hispanic employees.

CDC is led by Wayne Ripberger and his management team – committed employees you know as neighbors and friends.

We are very proud of our CDC employees, not just because they do a terrific job manufacturing engines … but because they care about making a difference here in Rocky Mount. This focus on corporate responsibility is one of Cummins’ core values … and a very important part of the way we do business.

In keeping with these values, Wayne and his staff serve on more than 25 non-profit boards and committees.

CDC employees are encouraged to share their time and skills with their community partners … such as Down East Partnership for Children, area Boys and Girls Clubs, Special Olympics, Communities in Schools and the Rocky Mount Area Chamber of Commerce.

The 2006 United Way campaign is a good example of how passionate CDC employees are about their community. Their goal was to reach $120,000 dollars, but employees beat that target by contributing nearly $155,000 dollars.A matching gift from the Cummins Foundation boosted the total contribution to approximately $310,000 dollars.

Sixty-seven percent of the CDC workforce contributed to the campaign … one of the best participation rates among all Cummins facilities.

Last month, Wayne, Community Relations Manager Gloria Hicks and our Cummins Foundation President handed out checks totaling more than $594,000 dollars to United Way, United Community Ministries, Boys and Girls Club of Nash and EdgecombeCounties and the ImperialCenter.

Since 1983, CDC has distributed$1.5 million dollars in grants from the Cummins Foundation in addition to its yearly plant contributions budget, which exceeds $100,000.

The $250,000 grant to the ImperialCenter helps establish the Cummins

Planetarium in the Children’s Museum. The ImperialCenter and Planetarium are more than impressive additions to the city; they are symbols of the re-birth that is taking place in this community. With the leadership of Mayor Turnage,Rocky Mount has undertaken an ambitious rebuilding effort since Hurricane Floyd struck in 1999. And it is paying off.

I tell you all of this not simply to pat ourselves on the back, but to make clear that Cummins expects its people to serve and improve the communities in which we operate. Cummins can only be as good as our communities, and in order to compete in an increasingly competitive world, communities must improve at a faster rate.

You deserve congratulations for making progress in such areas as improving education, promoting healthy children and families and encouraging the non profit organizations in your community to collaborate more closely.

Rocky Mount’s commitment to creatinga vibrant community and to promoting an educated workforce can help position you to thrive in the future.

However, manufacturing is getting much more competitive as communication, transportation and information technology shrink our world and further globalizethe economy. We can’t ignore what is happening and assume everything will stay the same.

In his book, The World is Flat, Tom Friedman writes of the global connectivity that has spawned new technologies.

Today, a 14-year-old in China or India or Russia or Brazil has all the information, all the tools, all the software easily available to apply knowledge however he or she wants.

Businesses, universities, state governments, world economies and most institutions are feeling the impact of this global interaction, which is occurring at an unprecedented rate in our history.

There are ample indicators that globalization creates value – substantial value – for countries that embrace it.

Since 1980, many developing countries in Asia have more than doubled their gross domestic product and per capita incomes and reduced average import tariffs by more than one-third.

These "new globalizers" have also seen major reductions in poverty along with improvements in human welfare.

The United States has also had its share of success. Manufacturing output has increased by 3.7 percent per year over the last 50 yearsfor a total increase of 700 percent.This deserves a WOW! This increase in output is primarily due to strong growth in productivity.

Because of technology improvements and other advancements, what took 1,000 workers to manufacture in 1950, required only199 workers to produce in 2005. This has nothing to do with “outsourcing” or “off-shoring.”

Productivity improvements in manufacturing mirror what has happened in farming. Early in the 20thcentury, it took two American farmers to produce food for five people. Today, because of technology improvements, a single farmer can feed more than 130people.

A recent editorial in the New York Times cited a globalization study done on behalf of the banking industry.

An examination of 60 countries found that globalized nations tended to pursue policies that achieve faster economic growth, lower inflation, higher incomes and greater economic freedom.

The least globalized countries were more prone to policies that interfere with markets and lead to stagnation, inflation and diminished competitiveness.

The study concluded that as nations become more integrated into the world economy, they tend to maintain fewer trade barriers and avoid onerous laws and regulations … are more favorable to technical innovation … and offer greater political stability.

Companies that are successful in a global economy reinvest in new business opportunities, creating more jobs and greater wealth … or they can pay additional dividends to shareholders … or they lower prices or offer consumers new and better products … or they can invest greater amounts in research and technology – again, creating ideas and products that translate directly into new jobs and even greater economic prosperity.

Examining how we can benefit from a globalized economy forces us to look at what is going on in our country and to ask the question … are we prepared to deal with this new economic reality and to benefit from it?I believe that in many areasof our country the answer is no.

The primary area of concern has to do with the education of our children.

Many of our children are ill-prepared for their future … and this puts our country at a competitive disadvantage in a global marketplace. Continued prosperity for America depends on improved education.

In a recent test of general knowledge in math and science, 12th graders performed below the international average for 21 countries.In a similar study, about one third of the fourth graders and one-fifth of the eighth graders tested lacked the ability to perform basic math computations.

In 2004, China graduated about 500,000 engineers, India 200,000 … and in the United Statesthe numbers were considerably smaller at 70,000.

Bill Gates, the founder of Microsoft, has warned that American high-school education is ''obsolete.'' He said:

''When I compare our schools to what I see when I'm traveling abroad, I am terrified for our work force of tomorrow.”

Gates points out that America is falling behind in the international competition to have the largest and best supply of knowledge workers.

Without an excellent education system from kindergarten through 12th grade and beyond … and expanded opportunities for career retraining … U. S. employees and companies will be at a significant competitive disadvantage.

This skills gap has also led to a serious shortage of qualified employees for manufacturing jobs, according to arecent survey done on behalf of the National Association of Manufacturers.

Half of the companies that responded said their workers have inadequate basic skills, such as attendance, timeliness and a work ethic. Forty-six percent reported inadequate problem-solving skills and 36 percent indicated insufficient reading, writing and communication skills.

Eighty-three percent of those who answered the survey said those shortages are affecting their ability to serve customers.

The NAM survey called the gap between available skills and the requirements for modern global manufacturing “our nation’s most critical business issue.”

Let me stress that for North Carolina and Rocky Mount – as well as other communities where Cummins does business – the big issueis finding enough skilled labor … employees, who are prepared to use statistical methods, operate higher technology equipment, work well with colleagues and are eager to learn new, more efficient ways of getting their jobs done. Solving this problem is absolutely necessary to being and remaining a world-class manufacturer.

It’s tough to miss the irony in this situation.

As some members of the public and politicians blame job loss on globalization and outsourcing, the simple truth is that the skills gap is making it difficult for us to find enough capable labor in the United States.And if we can’t find it here … we and others will have to look elsewhere.

At Cummins, we believe that to attract the talent necessary to be competitive requires that communities improve education and become more welcoming. This is best accomplished through ongoing collaborative efforts between local and state governments, educational institutions, business and community development leaders.

Let me give you an example of what I mean.

Last October, Cummins announced that the Columbus Engine Plant in our headquarters city in Indiana would be the site of the manufacturing operations for our exciting new light-duty diesel engine product.

Several states competed for this plant, which will employ more than 600 people. Ultimately, Indiana and Columbus were awarded the bid… but not because the state offered Cummins the most money. Instead,local and state officials put together innovative incentives that focused on creating a robust and skilled workforce in southeasternIndiana where the plant will be located. This wasn’t done just for Cummins, but for the benefit of all local manufacturers.

For example, the Indiana Department of Workforce Development – in alignment with a regional vocational college – offered up to $1.5 million to improve advanced manufacturing training. The Department also committed $2 million to grow awareness and interest in advanced manufacturing careers among the region’s high school students.

That includes funds to cover the start-up costs for the innovative Dream It, Do It careers campaign from the Manufacturing Institute, the education and research arm of the National Association of Manufacturers.

Additional money was raised for each of the next 10 years to enable the community and the local branches of Indiana University, Purdue University and Ivy Tech College to work together to improve the quality of post-secondary education to help promote economic development.

A management board, with community, business and educational leaders, has been set up to direct this effort. That means offering the right programs and ensuring easy transfer of credits among the state’s main and satellite campuses. The management board ensures critical community involvement in the region’s educational strategy, especially as it relates to improving the community itself.

That process is still in its early days. But I believe it will create a new model in the State of Indiana for how various groups of people and institutions can collaborate to deliver both educational improvement and economic development to the benefit of its students and the betterment of the community.

It’s my understanding that you, too, have some initiatives underway that promote collaboration.

The Carolinas Gateway Partnership is one example of how counties, towns and municipalities are working together to attract new industry to the area. The Chamber’s recent business consortium on skills shortages highlighted the importance of working together for common goals.

The Rocky Mount Industrial Organization shows us how local industry leaders are working together to identify critical needs for the workforce.

Your local community colleges are offering unique state-funded workforce training programs and collaborating with business and industry, private colleges and the University of North Carolina system to enhance workforce development.

And an aggressive effort has been launched to establish the University of North Carolina- Rocky Mount. I don’t need to tell you how much this campus is needed to provide an affordable four-year university education for the Rocky Mount region.

While there clearly is lots going on, there are still many areas of concern and a need for the public workforce system, companies and their business associations to strengthen their engagement with workforce development programs and funding.

It is critical to long-term success that the various groups doing their own thing find common ground and pursue educationalimprovement, economic development and quality of life simultaneously and collaboratively.