Lucas lands Mercedes diesel contract

LUCAS INDUSTRIES, the struggling UK engineering group, is this week due to announce a breakthrough in the German automotive market.

The company is believed to have beaten its German rival Bosch to a contract to supply an advanced diesel engine management system for a new Mercedes.

'To have kicked Bosch into touch in their own heartland is a hell of a good deal,' said Rob Golding, motor industry analyst at Warburg Securities.

Development of the electronic fuel injection system has been a multi-million-pound investment over five years at Lucas's plant in Blois, France, where executives will unveil details of the contract on Tuesday.

The deal is thought to be for a diesel version of the new Mercedes C-class, expected to be launched later this year. Although sales of diesel vehicles are expected to hit three million in Europe this year, they have not caught on in the luxury market. Diesel engines are tarred with the image of sluggishness and inefficiency, a difficulty which the German manufacturer believes can be overcome with the Lucas system.

Lucas's breakthrough in the important German market may have come too late, however. Germany is sinking deeper into recession, and demand from the automotive sector is expected to fall by up to 20 per cent.

Lucas has been working with Ford to install the system - called Electronically Programmed Injection Control - into a Transit van. But it is in the executive car market that Lucas hopes Epic will prove most lucrative.

Mercedes is expected to produce about 60,000 C-class diesel vehicles, and the value of the Lucas contract has been put at about pounds 15m a year. Though not a money-spinning deal, its importance should not be underestimated, Lucas says.

A spokesman, who would only say the that contract was with a European motor manufacturer, said: 'Technologically this deal is vital and puts us in the forefront of engine management. At this stage the breakthrough is in technology and application.'

Even so, the deal's prestige will do little to alleviate the company's present financial problems. Lucas, a favourite City takeover target, is halfway through a programme of non-core disposals expected to raise pounds 100m.