Commercial vehicle transmission maker Allison Transmission Holdings Inc. (ALSN) didn't get much traction out of its stock on its first day as a public company Thursday.

The company's shares opened at $23 on the New York Stock Exchange, flat with its initial public offering price, and were changing hands recently at $23.03, up less than 1%. A total of 26.1 million shares--4.4 million more than originally planned--were priced at the midpoint of its expected $22 to $24 range.

Allison Transmission says it is the largest global manufacturer of fully automatic transmissions for large vehicles, such as trucks, buses, military and mining equipment. It estimates that it sold about 62% of the world's automatic transmissions for medium- and heavy-duty highway commercial vehicles in 2011.

Its transmissions are the standard or exclusive transmission offered in certain types of vehicles in North America, including school buses, fire and emergency vehicles, medium- and heavy-tactical military vehicles, and certain mining trucks. Its transmissions are also commonly used in various oil and natural gas drilling and extraction equipment.

The company claims in its prospectus that its brand is one of the most recognized and respected names in the commercial vehicle industry.

Allison says its core North American market is poised for continued recovery. According to ACT Research, after reaching a 20-year low in 2009, the market increased by 54% from 2009 to 2011, and is expected to show a compound annual growth rate of 9.0% from 2011 to 2014. In addition, the company sees expansion outside of North America as a growth opportunity; less than 5% of the medium- and heavy-duty commercial vehicles sold outside North America in 2011 were equipped with fully automatic transmission. Already, Allison is the leading provider of fully automatic transmissions for medium- and heavy-duty commercial vehicles in China.

On the cost side, Allison has been cutting expenses. In 2008 it negotiated a multi-tier wage and benefit structure with its unions that includes an annual profit-sharing incentive compensation plan for the hourly workforce tied to the same performance measures used for the management team and salaried employees. It has also established new manufacturing facilities in lower-cost labor manufacturing markets like India and Hungary.

Allison Transmission, which has its headquarters in Indianapolis, was acquired by The Carlyle Group Inc. and Onex Corp. in August 2007 for $5.6 billion from General Motors Corp. (GM). The acquisition was structured as an asset purchase for U.S. federal income tax purposes, which allows the company to take U.S. federal income tax deductions of about $315 million annually through 2021 and approximately $183 million in 2022.

All the shares in the offering are being sold by Carlyle and Onex, so none of the proceeds will benefit the company. Post-IPO, each of the companies continues to own a 44% stake in the firm.

Net sales rose 12% to $2.16 billion in 2011, compared with 2010. Allison does carry a lot of debt--nearly $3.4 billion as of Dec. 31--so its interest payments are a drag on its bottom line. But its operating income in the past two years has been high enough to overcome the interest costs, allowing the company to turn a profit of $103 million in 2011 compared to a profit of $30 million in 2010.

The company warns that the commercial vehicle industry has been more adversely affected by recent economic conditions than many other industries, because purchases or replacements can be deferred for many reasons; that particularly hurt the company in 2008 and 2009. Some of the markets in which it operates, including energy, mining, construction, distribution and motorhome, are also very cyclical.

Allison's long-term growth strategy depends in part on an increasing rate of adoption of fully automatic transmissions in commercial vehicles outside of North America. However, manual transmissions remain the market leader abroad, and there is no guarantee that will shift. The large existing installed base of manual transmissions and customer preferences for manual transmissions, among other things, could curb growth.

Bank of America Merrill Lynch (BAC), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM) managed Allison Transmission's offering.

--By Lynn Cowan, Dow Jones Newswires; 202-257-2740; lynn.cowan@dowjones.com

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