Navistar In Joint Venture With VW

In a statement, VW chairman Hans Dieter Pötsch described the agreement as “a milestone” because the auto group’s VW Truck and Bus division would “gain access to the key North American market, where it was not previously represented”.

The two companies said adding global scale will deliver cost savings for both companies. “Together we cover 25% of global [truck] market”.

“It’s not in a very strong bargaining position, so Volkswagen got in cheap”, he said.

The company says it expects “significant” synergies from the strategic technology collaboration, with cumulative synergies ramping up to as much as $500M after five years.

The deal should help both sides cut costs, give Volkswagen’s trucks business a long-desired foothold in North America, and provide a source of new engines for Navistar, which has been looking for a partner since 2010 when it failed to get approval from U.S. regulators for its heavy-duty diesel truck engine. The alliance is also created to strengthen Navistar’s liquidity position. “I sleep better knowing we have over $1 billion in cash on hand [as] we need $500 million to run the business”.

The promise of sharing technology with Volkswagen extends beyond powertrains alone.

Lisle, Ill.,-based Navistar, whose business is heavily concentrated in North America, continues to emerge from its own emissions problems.

“All trucks will be connected”. “The software may be different but the hardware is the same”. The Cummins engine is truly an outstanding product that’s given us a lot of traction in the market. “We are certainly counting on structural efficiencies”.

“There is a well-established trend in the industry globally of long vertical integration”, Clarke said. Over the longer term, it is meant to expand the technology options we are able to offer our customers by leveraging the best of both companies and enabling Navistar to deliver enhanced uptime.

Therefore, analysts with Germany-based DZ Bank said in comments that the deal may be “a first step for VW to improve its footprint in the United States”, but that the company’s commercial vehicles business was “far less important than its auto business”.

Navistar CEO Clarke said the deal had the unanimous approval of its board of directors.

Clarke added that the 13 liter engine Navistar now offers – its N-13 unit – is derived from a previous deal made with VW subsidiary MAN.

Borst said neither company has filed the necessary paperwork yet to consummate the partnership but that he does not expect to face too many regulatory challenges. “So we are not speculating or making announcements on that today”. We are improving our market share, it’s just not as fast as we had hoped, and this should increase that. “That will give us a clearer view”. “This is good for the customers, but it’s not good for the existing competitors to have more money coming into an industry that’s already over capacity”. The marriage isn’t without risk given Navistar’s shrinking market share in the US, a country that has also confounded VW. If you’re a company that buys trucks you don’t want to find that technology is stranded at some point in the future. “This deal will get at this in a big way”.