Caterpillar School-Bus Engines Are Hit in Lawsuits

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Heavy-Equipment Firm Faces Allegations of Emission-Control Problems

Wall Street Journal / June 12, 2014

Caterpillar Inc. faces at least 15 lawsuits over allegations that engines for trucks, charter buses and school buses it sold between 2006 and 2010 were prone to regular breakdowns and in some cases caught fire.

Although the alleged flaws aren't known to have caused deaths or injuries, the suits are a potentially costly embarrassment for a company that regularly says the reliability of its products justifies premium prices.

Earlier this week, Caterpillar acknowledged an agreement to pay $46 million to settle a lawsuit alleging that defects in one of its marine engines caused a fire that destroyed a ship in Mobile, Ala., six years ago.

Caterpillar is best known for its yellow construction and mining equipment but also makes a variety of engines used to power oil-production equipment, ships, electricity generators, trains and industrial machinery. The engine business accounted for 60% of Caterpillar's operating profit of $5.63 billion last year.

Faced with high costs and a small market share, Caterpillar stopped making truck and bus engines for the U.S. market four years ago. Since then, it has faced a series of lawsuits over those engines, several filed in recent months.

In various lawsuits, owners of buses and trucks say faulty emission-control systems in the Caterpillar engines caused them to break down frequently, stranding vehicles until they could be towed to repair shops.

Caterpillar bus-engine problems delayed minor-league baseball teams for hours and left senior citizens sweating on roadsides, said Jeff Polzien, owner of Red Carpet Charters, an Oklahoma City company that is suing Caterpillar for damages.

Mike Haggerty, chairman of CH Bus Sales, Faribault, Minn., recalls attending a Caterpillar expense-paid seminar about seven years ago in Pebble Beach, Calif., and hearing that the engines represented "cutting-edge technology." He ordered more than 60 buses with those engines, both for resale to his customers and for use at a Southwestern U.S. charter service he owned then.

"It's a disaster," Mr. Haggerty said. He said engine fires destroyed two of the buses, and the others were so unreliable "we got to the point where we just couldn't send them out" on long trips. He has begun replacing the engines and transmissions in some of the buses with equipment made by other suppliers at a cost of roughly $125,000 per vehicle.

CH Bus's suit against Caterpillar, filed in 2012, is pending in state Superior Court in Orange County, Calif.

A Caterpillar spokeswoman said the company, based in Peoria, Ill., "is addressing various claims relating to alleged performance issues" with engines designed to comply with U.S. emission-control standards that took effect in 2007. She added: "Our customers have utilized and had success with the performance of these engines in trucks, buses, and RVs across millions of miles in North America." Caterpillar declined to comment further.

It isn't clear how much the litigation will ultimately cost Caterpillar. A suit filed in May by Harmon Brothers Charter Services Inc. of Union City, Ga., in U.S. District Court in Atlanta alleged that Caterpillar "has paid tens of millions of dollars to settle lawsuits brought by large fleet dealers (or other well-financed adversaries) relating to defects" with the engines.

Last September, Caterpillar agreed to pay $900,000 to the Northside Independent School District in San Antonio, Texas, to settle a suit over school buses. The school district blamed Caterpillar engines for two fires.

When the U.S. Environmental Protection Agency began clamping down on exhaust-belching diesel engines in the late 1990s, Caterpillar faced the challenge of devising pollution-reduction systems for its bulldozers and excavators as well as for its truck engines. A solution covering all of those needs was complicated because engines in commercial trucks and buses typically operate at prolonged faster speeds and generate hotter exhaust than a slow-moving bulldozer or excavator.

In the early 2000s, Caterpillar engineers came up with an in-house exhaust-treatment system known as ACERT, or Advanced Combustion Emissions Reduction Technology.

"ACERT was really made for off-highway use," said Tom Rhein, president of engine- and truck-market forecasting firm Rhein Associates in Michigan. "They adapted it for on-highway, but it didn't work."

Doug Oberhelman, chief executive of Caterpillar since July 2010, helped oversee the ACERT program. At a presentation in 2005, he hailed the technology for "performance and durability that is synonymous with the Caterpillar name."

The ACERT system is based on improving the circulation of exhaust through the engine as way to reduce pollutants. It includes a filter designed to trap exhaust soot, which is then regenerated into fuel. Several of the suits allege that malfunctions frequently caused warning lights to go on and forced drivers to halt the vehicles.

As Caterpillar's problems with the 2007 engines increased, the company faced an even bigger hurdle in complying with stricter EPA standards on diesel exhaust starting in 2010.

"As the standards got higher, the [technology] challenges got higher too and Cat struggled with them," said Dennis Huibregtse, senior vice president of Minnesota-based market forecaster Power Systems Research. "They knew they were going to have difficulty meeting the 2010 emissions standards." The company's decision to pull out of the U.S. market for on-highway vehicles solved that problem, but left behind a growing pile of lawsuits.

On Wednesday, the U.S. Judicial Panel on Multidistrict Litigation consolidated five of the suits and referred them to the U.S. District Court of New Jersey.

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