LONDON - LucasVarity has backed out of a major deal to supply an electronic fuel-injection system to Volkswagen AG.
The company said it couldn't make enough money on the $1 billion contract.
At the same time, it announced that it would supply $830 million of a different system to Ford and Renault.
LucasVarity's Diesel Systems Division will supply common-rail fuel-injection systems for vehicles that will go into production after 2000.
In March 1995, before Varity merged with Lucas, Lucas was awarded a $1 billion, seven-year contract to supply Volkswagen with advanced electronic unit injectors for diesel engines.
At the time electronic unit injection was seen as the best way to improve fuel efficiency. Today, common-rail injection is seen as a more efficient answer.
Electronic unit injectors boost injection pressures. Common-rail uses an independent hydraulic pump to pressurize fuel.
The VW deal was the largest single contract ever won by Lucas Industries.
The project was abandoned because LucasVarity could not find other customers for the product, causing it to fail a financial test brought in from Varity Corp. after last year's merger.
Continued investment in electronic injectors would not have met a targeted 20 percent pre-tax return, said Tony Gilroy, LucasVarity's chief operating officer.
'The economic added value process has been used by Varity for many years' and was adopted by all divisions of the new company after the merger, said spokesman Nicholas Jones. 'The injector unit was a success in engineering terms, but failed the economic added value test.'
A problem, he said, was that the VW program assumed incremental sales to other carmakers, 'but the last few months has proved most carmakers prefer common-rail injection. This means the injector unit is not viable, so it will not go into production.'
A Volkswagen spokesman said he was not aware that LucasVarity had withdrawn from the project.
'But Lucas was not the sole supplier,' he said, 'so I expect it means more business for Bosch.'