Volkswagen to Take Big Stake in Navistar

[kscarbel2]

The Wall Street Journal  /  September 5, 2016

Volkswagen likely to pay about $16 a share for Navistar stake

Volkswagen AG plans to buy a minority stake in Navistar International Corp. to provide a foothold in the U.S. and bolster its global truck-market aspirations, according to people familiar with the situation.

The proposed transaction, which could be announced as early as Tuesday, comes as Navistar deals with the fallout from a run-in over emissions regulations and a declining market share that has left it trailing rivals in a North American commercial truck market wrestling with a slump.

VW’s plan to pay roughly $200 million for a nearly 17% stake in Navistar signals that executives at the German auto maker feel confident enough to expand strategically in the U.S., even as they work through the fallout from a scandal over the rigging of emissions tests on many of VW’s most popular passenger cars.

The scandal has cost VW nearly $20 billion so far, forcing the company to slash spending and put any big acquisition plans on hold.

Lisle-Ill.-based Navistar is still trying to overcome its own emissions problems. The company agreed earlier this year to pay the Securities and Exchange Commission $7.5 million to settle charges it misled investors about its ability to comply with tougher U.S. standards on diesel engine exhaust beginning in 2010.

Although Navistar neither admitted nor denied the charges, the company’s emissions strategy plunged it into a prolonged tailspin that has cost it hundreds of millions of dollars, halved its share of the U.S. heavy-duty truck market and wiped out about 80% of its market value over the past five years.

VW has agreed to pay $16 a share for Navistar, a nearly 14% premium on Friday’s closing share price of $14.07, according to people familiar with the situation. Navistar had a market value of $1.2 billion at Friday’s close.

In exchange, VW will get two seats on Navistar’s board. The two companies, which have been in on-again, off-again talks since early 2015, have agreed to cooperate on purchasing and developing new products, the people said.

VW would be joining a board that already includes representatives of activist investors Carl Icahn and Mark Rachesky, who each control about 20% of the company.

Mr. Icahn originally bought into Navistar as part of an attempt to combine it with specialty truck builder Oshkosh Corp. Navistar’s losses have driven its stock price well below what the activists paid for their shares.

VW has long been rumored to be interested in Navistar. The German company is a powerhouse in the global truck market, particularly in Europe and Brazil, but doesn’t sell many large commercial trucks in the U.S.

Rival  Volvo AB produces trucks in the U.S. under the Mack brand, while Daimler AG owns Freightliner.

Navistar draws most of its sales from the U.S., Canada and Mexico and has a limited overseas business, making it a potentially good fit for VW. Navistar also has a strong dealer network that provides service and replacement parts.

Wolfsburg, Germany-based VW bundled its commercial vehicle businesses, including its European brands MAN and Scania, into a holding company in 2015. VW’s combined commercial vehicles businesses generated €34.5 billion ($38.6 billion) in revenue in 2015 and €1.7 billion in earnings before interest and taxes.

VW is entering a North American truck market where demand has fallen off significantly after an elevated stretch of truck buying. Production of heavy-duty trucks this year is expected to fall by about one-third from last year’s near-term peak to about 200,000 vehicles. Trucking companies have pulled back on purchases after restocking their fleets with more fuel-efficient trucks in recent years.

Navistar would likely receive a much-needed boost in truck and engine technology from VW. But even with Volkswagen’s deep pockets and commitment to growth, it could be difficult to quickly nurse Navistar back to financial and truck-market health.

Navistar is saddled with about $5 billion in debt, according to S&P Global Market Intelligence, and is expected to report another loss this year. The company, which has a large unfunded pension liability, hasn’t consistently earned a profit in four years. Navistar recorded $10.1 billion in revenue for its fiscal year ended Oct. 31, 2015 and a loss of $184 million.

Navistar ranks fourth in the North America heavy-duty truck market with about 11% of retail sales. Market-leader Freightliner has about 40% of the market. In between are strong competitors Paccar Inc. —the maker of Peterbilt and Kenworth trucks—and Volvo.

Navistar’s market share in heavy-duty trucks is about half the size it was five years ago. Customers abandoned Navistar’s trucks for competitors’ models when Navistar’s strategy for complying with the 2010 regulations on diesel engine emissions undermined the reliability of Navistar’s trucks and caused huge warranty-related expenses to fix the company’s engines.

Navistar had attempted to develop a proprietary solution to comply with the tougher pollution-reduction standard, rather than using the same exhaust treatment technology as the rest of the truck and engine industry.

VW’s wager on Navistar isn’t sure of success. The U.S. truck maker has lost a lot of ground over the past few years and it is uncertain whether the two companies will be able to align their corporate cultures to quickly improve the brand’s reputation and its products.

The German auto maker doesn’t have engines tailored to the U.S. market yet, which it will now have to develop for Navistar. It is also unclear how Volkswagen will position Navistar in North America in relation to its main truck brands MAN and Scania.

Daimler has the benefit of owning a U.S.-based engine subsidiary, Detroit Diesel, and has been able to incorporate improvements in fuel economy and performance from other Daimler engines into the Detroit brand, which is well known in the trucking industry.

[kscarbel2]

VW said to be taking stake in Navistar in engine supply deal

Reuters  /  September 5, 2016

Volkswagen to take 19.9 percent stake in Navistar

Volkswagen's trucks division is close to announcing a partnership with Lisle, Ill.-based rival Navistar International Corp., three sources told Reuters, in the latest example of a deal driven by emissions regulations.

Volkswagen has agreed to supply engines to Navistar in exchange for a 19.9 percent stake in the truckmaker, one of the sources, who declined to be named, told Reuters.

Volkswagen will pay around $16 per Navistar share or about 200 million euros ($223 million) in total, the source said.

The deal will be announced as soon as Tuesday, the sources said. Volkswagen and Navistar declined to comment.

The financial burden of developing next generation engines to meet new emissions standards is forcing several vehicle makers to pursue partnerships and technology deals.

In May, Nissan took a 34 percent stake in Mitsubishi Motors, while in 2013, Aston Martin agreed to sell a 5 percent stake to Mercedes-Benz parent Daimler in exchange for delivering next generation engines and electronics that meet the latest emissions rules.

Volkswagen's commercial vehicles division is trying to build itself into a global truck manufacturer having absorbed Germany's MAN and Sweden's Scania, while Navistar is looking for a technology partner to build engines that can meet ever more stringent emissions rules.

For Volkswagen, Navistar is seen as an attractive target because it has a large North American dealer network, something the German company lacks.

Navistar, which has a market value of around $1.15 billion, has been on the lookout for an engine partner since 2010 when it failed to get approval from the U.S. Environmental Protection Agency for its heavy-duty diesel truck engine.

The two companies have been in talks about a potential tie-up for years, but Volkswagen has been distracted for much of the past 12 months by a diesel emissions test cheating scandal that has seen several top management departures.

[TeamsterGrrrl]

Smart move for VW Group, though why didn't they buy NAV when it bottomed? With MAN designed engines in Navistar trucks they're already partway in the U.S. market. And given the difficulty of "rationalizing" MAN and Scania post-merger, buying NAV gives MAN a role to play where they won't bump heads with Scania by letting MAN concentrate on the 3rd world and American markets that can't afford or won't appreciate Scania's premium products. NAV brings something to the party too- Their conventional cab trucks might fill a gap in VW's truck ranges in the countries where a short conventional like the Navistar 7600 might make sense to pull the shorter bulk and intermodal trailers.

[kscarbel2]

VW will take stake in Navistar to challenge Daimler in heavy trucks

Automotive News  /  September 5, 2016

Volkswagen Group will take a 19.9 percent stake in U.S.-based Navistar International for around $16 per share as part of a partnership deal, a person familiar with the matter said on Monday.

VW's commercial vehicles division is trying to build itself into a global truck manufacturer having absorbed Germany's MAN and Sweden's Scania. Navistar is looking for a technology partner to build engines that can meet tightening emissions rules.

Navistar is seen as an attractive target for VW because it has a large North American dealer network, something the German automaker lacks. Andreas Renschler, head of Volkswagen commercial vehicles, has wanted to get a strategic foothold in North America as a way to challenge Daimler, his former employer.

The deal will be announced as soon as Tuesday, sources said.

Volkswagen declined to comment, while Navistar was not immediately available for comment.

Navistar has a market value of around $1.15 billion and has been on the lookout for an engine partner since 2010 when it failed to get approval from the U.S. Environmental Protection Agency for its heavy-duty diesel truck engine.

VW has agreed to supply engines to Navistar in exchange for a stake in the truckmaker, one source told Reuters.

[kscarbel2]

"The German auto maker doesn’t have engines tailored to the U.S. market yet, which it will now have to develop for Navistar"

Clueless and incompetent reporting. Navistar's N11 and N13 are license-built versions of MAN's D2066 and D2676 engines. MAN is a subsidiary of Volkswagen Truck & Bus.

All of the Scania (also a VW subsidiary) and MAN Euro-6 engines, can be easily adapted to EPA2010.

The 15-litre MAN D38 (520 to 640hp) and 16.4-litre Scania V-8 (520 to 730hp) could be in the cards.

This could be the death knell for Cummins in the U.S. truck market.

[TeamsterGrrrl]

With all due respect, I wouldn't write off Cummins so quick. Cummins has succeeded because they specialize in engines and can supply EPA2010, Tier 4, Natural Gas, and other specialized engines while the companies that build trucks and engines on the side struggle to adapt. For example, while Volvo took a couple years to bring the American market Mack Titan to market, Cummins had EPA 2007 engines ready to go and Already engineered into the CL. Same with natural gas engines- Cummins is supplying the integrated manufacturers because Cummins specializes in engines and can come up with solutions while the integrated manufacturers struggle.

[kscarbel2]

Scania offers FAR alternative fuel options than Cummins, and they design them in-house.

The Cummins-Westport engines are mediocre, and their exhaust aftertreatment technology (Cummins Filtration) is 2 steps behind the global leaders in the field.

Cummins is sucking wind.

Navistar is looking good. But having said that, engine options are limited. Some people don't like Cummins. Navistar must have at least two engine options (it's a shame one can no longer get a Detroit in an International, thanks to Daimler).

The tie-up with VW will result in Navistar's current engine supplier, MAN, providing direct support the development of future engines to meet stricter emissions. And the Scania engines are at their disposal as well. This is going to save Navistar a lot of money and provide it with cutting edge engines far better than Cummins.

NAV CEO Troy Clarke said that he wanted to form strategic partnerships.......not sell the farm. I can accept a 19.9% minority stake in return for access to MAN and Scania powertrains.

[TeamsterGrrrl]

Yes, but do we want to let Scania's magnificent V8s take up residence in lowly International trucks?

[TeamsterGrrrl]

And should I dump my small holding in Cummins stock and buy VW?

[1965]

2 minutes ago, TeamsterGrrrl said:

Yes, but do we want to let Scania's magnificent V8s take up residence in lowly International trucks?

I would think a bunch of folks in US would buy farmall if they could get the new improved E9

[kscarbel2]

11 minutes ago, TeamsterGrrrl said:

And should I dump my small holding in Cummins stock and buy VW?

If you had come to the December 2015 BMT Investors meeting in St. Maarten (Barry never disappoints), you would have bought into NAV at $6 in January, and could sell tomorrow at $14. Why you pay the annual fee but rarely attend functions is beyond many of us.

BMT Investors has never announced a buy recommendation on Cummins. That purchase was your call.

[TeamsterGrrrl]

IIRC I bought Cummins before I ever got on BMT, and Cummins has been good to me. I'm completely out of Volvo, had a few shares that I hadn't dumped years ago, and the ADR agent decided to dump Volvo a few weeks back so I'm thankfully outa Volvo.

Of more importance is whether I should stick with VW or go back to Ford when VW buys back my TDI. I'm looking for something between the size and capabilities of a Golf at the smallest and a diesel Ranger at the biggest. I like the Golf Sportswagon, but if I can't get one with a diesel I'll be looking elsewhere. Fords small cars don't seem to be competitive, and even Ford's little SUVs are gas hogs, and an F150 is way bigger than I need. But if Ford comes through with the diesel Ranger, that's gonna be hard to resist.

[kscarbel2]

I would never buy a Volkswagen today, particularly if it rested on the new cheaper-for-VW-to-build "MQB" platform. Ford of Europe builds superb cars, however when they're brought over to the North American market and homologated, they are also subtly decontented and you lose the quality and many powertrain options available on the continent.

If Ford brings the diesel Everest to North America (allegedly to be rebadged as Bronco) and doesn't change it to death, you'll be standing behind me in line to order one.

If I had to buy a "car", for example in the size range you have in mind........something with the flexibility of the Golf Sportwagen (or predecessor Jetta Sportwagen in the U.S. market) that's available in the US market, that's a very tough dilemma. There's really nothing out there.

If you wanted a VW, you can't get the Touran, Sharan, Golf Sportsvan or Passat Estate here (http://en.volkswagen.com/en/models.html).

If a wagen, you can't get the superb Octavia Combi (http://www.skoda-auto.com/en/models/new-octavia-combi/overview/).

You can't get the Honda CRV diesel, or the Highlander with the advanced new fuel-saving direct injection D-4ST.

[TeamsterGrrrl]

Yup, a lot of VW's future product plans have me shaking my head... Like the American market SUV for a start. Lotsa volume in the SUV segment, but they'll be up against over a dozen competitors in a price competitive market. And unless VW has something in that SUV to make it a real standout, why should anyone buy it instead of those dozen plus competitors. Then there's VW plan to specialize in electric cars- Less than 1% of the market and everyone loses money on them. Hopefully VW isn't serious about electrics and this is just propaganda to pacify CARB and the EPA... 

[kscarbel2]

13 minutes ago, TeamsterGrrrl said:

Yup, a lot of VW's future product plans have me shaking my head... Like the American market SUV for a start. Lotsa volume in the SUV segment, but they'll be up against over a dozen competitors in a price competitive market. And unless VW has something in that SUV to make it a real standout, why should anyone buy it instead of those dozen plus competitors. Then there's VW plan to specialize in electric cars- Less than 1% of the market and everyone loses money on them. Hopefully VW isn't serious about electrics and this is just propaganda to pacify CARB and the EPA... 

In both the China and the US (the world's 1st and 2nd largest car markets), VW is many years late to the SUV party. The VW brand has lost billions in potential sales because they had nothing to offer except the poorly design Tiguan and over-priced mediocre Touareg. I honestly don't think they know how to design a good VW brand SUV. I've only ever seen one, a concept SUV based on the Amarok pickup. That would have been affordable and spacious (practical), perfect for the US market.

.

[kscarbel2]

VW affair with Navistar challenges Volvo

Anders Hagerstrand, Dagens Industri  /  September 5, 2016

After years of speculation, it seems to be clear now how Volkswagen's truck unit, VW Trucks & Bus, will break into the heavy truck market in North America.

This means new challenges for the Volvo Group.

Reuters reported on Monday, citing several sources, that Volkswagen Trucks & Bus is set to announce cooperation with North American truckmaker Navistar in which VW will supply engines to Navistar in exchange for a stake in the American company. The news could be presented as early as Tuesday.

The deal is logical and fits both companies. Navistar has in recent years had major problems with its engine development and lost significant market share in North America. VW Truck & Bus is prepared to take a step-by-step approach into the North American truck market without being forced to pay billions for a whole company. This at a time when VW Group is suffering financially from its passenger car emissions scandal.

However, there is little doubt that the long-term aim for the head of VW's truck operations, Andreas Renschler, is to take full control of the Navistar just as VW has gradually taken control of Scania and MAN in Europe.

And, no need to doubt that VW's goal is to restore Navistar to being a strong truck manufacturers in North America.

For Sweden's Volvo Group, the development means VW's foray into North America creates tougher competition and new challenges in both the short and the long term.

Volvo Trucks is one of the brands which in recent years have gained market share in North America at Navistar's expense. With VW’s backing, Navistar will do everything to win back lost ground and today is impressively becoming a truckmaker with a market share of well over 20 percent in North America. That compares with the company's market share of 12 percent in 2015.

History indicates there is a great likelihood that VW will succeed. During his time as head of Daimler Trucks, Andreas Renschler managed well by acquiring problem companies and making them successful again.

VW Trucks with its Scania and MAN units, is already Europe's largest manufacturer of heavy trucks. By realizing cooperation with Navistar, VW is taking a big step towards becoming the world's largest manufacturer of both passenger cars and heavy trucks.

To be greatest in both passenger cars and commercial vehicles, VW has huge economies of scale in areas such as research and development. The same economies of scale of both light and heavy vehicles presently rank Daimler as the world's largest truckmaker.

Standing up to these competitors in the long-term will be a major challenge for Volvo Group, which in this context appears to be a small player. For Volvo's shareholders, it would have been better of the deal between Navistar and VW had lingered a few more years.

[RoadwayR]

With regards to Cummins, this isn't good news.  As we all know, International went with Cummins because because of NAV's failed EGR strategy.  It was a good move, kept them in the game when they had no alternative.  But, I never thought NAV looked at Cummins as a long term solution.  The 6.7L Cummins has replaced the MaxxForce 7, but I am hearing rumors that GM's Duramax may soon find it's way under International hoods.  The excellent N11 and N13 are in a number of Internationals, and with this new JV no doubt more MAN and Scania diesels are coming.  It all fits with Troy Clarke's plans on building and relying on strong JV's.  Where is Cummins in NAV's long term plans?

Over at DTNA, Freightliner's mediums will soon have the Detroit nee Benz DD5 and DD8 diesels, and you know what their dealers will be pushing.  

At least Cummins will always have Dodge.  Or Ram.  Or FCA, whatever it's called now....  Nissan too.  They will probably find themselves making more money on pickup truck engines if they are not already.  Maybe NAV won't be missed after all. 

Oh, and a few comments on Westport:  Not sure where they are going, Cummins is doing CNG in-house now.  I can't figure out why someone would think converting a heavy slow turning compression-ignition diesel engine into a spark-ignition gaseous fueled engine is a great idea.  Only advantage I see is ease of installation.  Large gasoline-type engines such as PSI's 8.8L make much more sense.  BTW- Westport recently gobbled up Impco, maybe they are looking to become the big gaseous fuel engine components supplier.    

VW might eventually have to spin off the truck operation to keep their hopelessly inefficient auto business afloat.  I don't see that as a problem.

[james j neiweem]

Way to go Navistar board of directors. You just let the rattlesnake in the mouse house. Are you people to dumb to see the historical implications of  Europe gobbling up US industries. I think not. You are just purposefully carrying out your new world order plans. Old Europe Royalty money in action.

Edited September 6, 2016 by james j neiweem
grammer

[TeamsterGrrrl]

Most of us americans are of european descent... I'm proud to be dutch, and a smattering of german and norwegian too. So letting our european relations buy up a bit more of Navistar and save it from bankruptcy is no big deal.

[Dirtymilkman]

At least with bankruptcy comes new opportunities. When bought out by European companies that brings............?

[TeamsterGrrrl]

Bankruptcy is unpredictable... Of the 30 odd Hostess bakeries still operating when the bankruptcy began, only 8 have been reopened. Most of the rest have been stripped and will never be bakeries again. In the case of Navistar, I suspect the major asset is dealer and customer goodwill, which would disappear as soon as the supply of new trucks disappeared and dealers and customers switched brands. Navistar's own engines are getting obsolete, and anyone buying the MAN design engine tooling would have to pay VW to use those designs. Springfield assembly plant is old too and probably wouldn't ever build trucks again.

If you can pull off a pre-pak bankruptcy like GM and Chrysler did, it generally ends halfway well. But throwing a corporation to the wolves via liquidation is usually a disaster.

[kscarbel2]

Navistar is doing great. They're coming out of the hole and making smart decisions. They've ridden themselves of all the senseless acquisitions that Ustian made, leaned the company out without the layoffs like Volvo/Mack and Freightliner, and have new product coming out of the pipeline.

Troy Clarke has been identifying meaningful partnerships, such as the two projects with General Motors.

NAV is already using MAN 11L and 13L engines anyway, produced under license in Huntsville, Alabama. A little history here, the relationship with MAN soured around 2010 when Ustian announced he was going to ship NAV-built MAN engines to China for heavy truck production there with JAC. MAN was justifiably upset because their agreement didn't allow that. Such an act would interfere with MAN's activities in China. In the end, NAV never built any trucks in China, and Ustian was ousted. Now, NAV and MAN have put the past behind them, and are seeking to work together again on engines. 

If they only buy a minority 16.6 percent stake, given MAN is one of their engine suppliers, I've no problem with that. If MAN (VW) acquired NAV, I would have a big problem with that.

Troy says he has no plan to sell out.

[kscarbel2]

VW buys 16.6% Navistar stake; full merger is possible

Bloomberg  /  September 6, 2016

Volkswagen has agreed a wide-ranging technology and purchasing deal with U.S. truck maker Navistar International Corp. in exchange for a 16.6 percent stake, an alliance forged in part by the need to meet stringent emissions regulations.

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.

Volkswagen Trucks CEO Andreas Renschler said a full merger with Navistar is possible once a technology and procurement alliance between the two truck makers takes shape.

In a call to discuss a technology and procurement partnership unveiled by the two companies today, Renschler was asked whether he could foresee a full merger with U.S.-based truck maker Navistar.

"On our way to becoming a global champion all options are open," Renschler said.

Renschler repeated the answer when he was asked whether Volkswagen's truck and buses businesses could be spun off from the German parent company.

With few potential partners to choose from, Navistar is tying is fortunes to a company which, through its acquisition of MAN and Sweden's Scania, has amassed global truck engine expertise, but whose carmaking arm is grappling with a scandal over falsified diesel emissions tests.

Volkswagen will pay $15.76 a share for 16.2 million new Navistar shares, a 12 percent premium to Navistar's closing price on Sept. 2, the two groups said today.

Volkswagen Truck & Bus will hold Navistar shares for a minimum of three years and top-level executives from both parties will align product development and procurement processes, the companies said.

The pact was welcomed by analysts who said it could also bolster VW's chances of spinning off its trucks arm.

"A more global company with exposure to the profitable North American market will make for a better story should VW look to IPO its trucks business in the future," Arndt Ellinghorst, analyst at Evercore ISI said in a note.

The alliance, first reported by Reuters on Monday, will see the creation of a joint venture for procurement, which Navistar said would help it reach synergies of at least $500 million over the first five years.

Pooling VW and Navistar's procurement will create economies of scale from Volkswagen Truck & Bus's three major truck brands -- Scania, MAN and Volkswagen Caminhões e Ônibus -- in addition to Navistar's own International and IC Bus brands.

Navistar gains

In a statement, Navistar CEO Troy Clarke said: "Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies." 

Clarke was a 35-year GM executive before going to Navistar in 2010. He became CEO at Navistar in 2013. He last served GM in 2009 as president of GM North America. 

By year five, Navistar expects the VW alliance to generate annual savings of at least $200 million, which could rise further as the companies continue to introduce technologies from the collaboration.

Navistar said savings will come from procurement and technology collaboration, rather than job cuts.

Emissions standards

U.S. regulators last month announced new environmental standards designed to cut greenhouse gas emissions from medium and heavy-duty trucks by up to 25 percent by 2027, adding pressure on Lisle, Ill.-based Navistar to seek a technology partner. 

The financial burden of developing next generation engines to meet new emissions standards is forcing several vehicle makers to pursue partnerships and technology deals. 

In May, Nissan took a 34 percent stake in Mitsubishi, while in 2013, Aston Martin agreed to sell a 5 percent stake to Mercedes-Benz parent Daimler in exchange for delivering next generation engines and electronics that meet the latest emissions rules.

Gaining traction in the U.S. heavy-truck market, dominated by Daimler, Volvo and Paccar, is key to VW’s plan to forge a global commercial-vehicle operation with higher profit margins than rivals. The marriage is not without risk given Navistar’s shrinking market share in the U.S., a country that has also confounded VW. Even before the diesel-cheating scandal, Volkswagen’s car sales were slipping behind competitors in the region.

Working with Navistar will provide access to technology and designs targeting customers in the U.S., where model lines are wholly different from offerings in the rest of the world. Many U.S. truck drivers prefer vehicles with an elongated nose, while European operators buy trucks with a flat face due to length restrictions.

Volkswagen, Europe’s biggest carmaker, tapped Renschler in May 2014, who ran Daimler’s truck operations, to push a stalled plan to deepen cooperation between its MAN and Scania brands.

Munich-based MAN and Swedish counterpart Scania don’t sell vehicles in the U.S., and the group’s only other large truck making operation is a VW-brand division in Brazil focused on Latin America. MAN has a Chinese joint venture with local affiliate Sinotruk Hong Kong Ltd. that sells models in Asia.

Entering the U.S. will give VW access to a market a bit smaller than its current home region. Around 240,000 trucks will be sold this year in the U.S., while 290,000 will be bought in Europe, according to estimates from Volvo.

Cost savings

The Volkswagen Truck & Bus division has been largely unaffected by the diesel-emissions scandal that erupted at the group’s car operations a year ago. It’s targeting 1 billion euros ($1.12 billion) in long-term cost savings through closer collaboration among its brands. Renschler has said VW is keeping all options open as part of his expansion strategy, including acquisitions and a possible share sale.

Navistar is no stranger to dramatic consequences from emissions-related troubles. The company had to kill most versions of its so-called premium vocational trucks in 2010 because they lacked diesel engines that complied with U.S. federal air-pollution rules. Navistar’s market share has tanked since its pollution-control technology failed to meet industry standards and brought the company to the brink of collapse.

Activist investors Carl Icahn and Mark Rachesky have accumulated a combined stake of almost 40 percent in Navistar since 2011. Declining demand for heavy trucks in North America, which led Daimler to cut the profit outlook for its truck unit earlier this year, has only added pressure on the U.S. manufacturer.

[kscarbel2]

Volkswagen Taking 16.6% Stake in Navistar

The Wall Street Journal  /  September 6, 2016

Purchase of truck company’s shares will cost the German auto maker $256 million

Volkswagen AG ’s new development alliance with Navistar International Corp. fuels the German company’s ambition to chase rival Daimler AG into the about $30 billion a year North American heavy-duty truck market.

Volkswagen’s shares of such truck sales are larger in Europe and Latin America and it has a joint venture with Sinotruk (Hong Kong) Ltd. in China. But Daimler entered the U.S. long ago, and has built a business that now accounts for about 40% of U.S. heavy-duty truck sales.

Volkswagen sought to even the score on Tuesday with its $256 million investment in Navistar, a 16.6% stake that will give it two seats on the Lisle, Ill.-based truck maker’s board. The stake and related development-and-procurement alliance will broaden Volkswagen’s U.S. footprint and global truck-market operations.

Behind the intensifying rivalry are two executives who have switched sides in the battle between the two German automotive giants.

Andreas Renschler, chief executive of Volkswagen’s Trucks and Buses business, was the architect of Daimler’s U.S. strategy. Passed over as chief executive, he left Daimler at the end of 2014 and was tapped by Volkswagen patriarch Ferdinand Piech to mold the fragmented truck businesses into a global enterprise.

Mr. Renschler’s former colleague and rival, Daimler Trucks Chief Executive Wolfgang Bernhard, is benefiting from the business that he built. But he wouldn’t compare Volkswagen and Daimler’s bids to grow in North America.

“You can ask that question of somebody else in 10 years,” he said in an interview on Tuesday.

Mr. Bernhard knows Volkswagen well. A decade ago he ran Volkswagen’s namesake car brand, pursuing an aggressive strategy to standardize components and streamline the business. At Daimler Trucks, he has driven efforts to create common truck platforms and develop new technology.

Messrs. Renschler and Bernhard are approaching the U.S. and global truck business with similar strategies.

Both are trying to bring the German auto industry’s obsession with standardization and common vehicle platforms to a U.S. market equally obsessed with freedom of choice.

“We’re trying to do something that the passenger car guys started already decades ago, what they call the platform strategy,” Mr. Bernhard said. “You use components in one vehicle and try to disperse that in your lineup as much as possible and by that you create economies of scale.”

Daimler owns truck maker Freightliner and engine supplier Detroit Diesel that have put its North American operations far ahead of Navistar. The parent company of Mercedes-Benz has quietly amassed 40% of heavy duty truck sales in North America in recent years.

Detroit Diesel builds engines that are standardized enough to keep development costs down even while producing versions of the same engine for the U.S., European and Japanese markets.

“These are the beginnings of a platform strategy. Now we are rolling it out to transmissions, we are rolling it out to axles and we are rolling it out to medium duty engines,” he said.

Creating a global truck platform that can allow Volkswagen to share components across many different brands and models was a big driver of this week’s Navistar deal.

Volkswagen’s investment in Navistar, at $15.76 a share, represents a 12% premium to Friday’s closing price. The two companies expect regulatory approvals of the deal by early next year.

Navistar anticipates cost savings of $500 million within the first five years of the venture and annual savings of $200 million after that. Initially, those savings were expected to come in the form of cheaper raw materials and commodity components through Navistar’s wide-ranging procurement alliance with Volkswagen.

Navistar CEO Troy Clarke said the alliance provides Navistar access to engine technology that should help it reclaim share lost to competitors a few years ago due to engine reliability problems. Navistar has about 11% of heavy-duty truck sales in North America, down about half from five years ago.

“We want to get as much of that market as we can,” Mr. Clarke said on Tuesday. The alliance “will increase [customer] consideration of our products.”

Volkswagen’s investment also provides a measure of stability for cash-strapped Navistar, which has battled worries from customers and investors that it would run out money.

“It gives some of their customers a sigh of relief to know that [Navistar] is going to be around for the long haul,” said Eric Starks, CEO of transportation consultancy FTR in Indiana.

The deal, details of which were first reported on Monday by The Wall Street Journal, comes as Navistar deals with the fallout from a run-in over emissions regulations and a declining market share that has left it trailing rivals in a North American commercial truck market wrestling with a slump.

The bulk of potential savings from the venture aren’t expected to be realized until after 2019, when Volkswagen plans to launch a new global platform for its heavy-truck brands MAN and Scania and that it will now jointly develop with Navistar.

Volkswagen’s MAN unit took a restructuring charge of more than €200 million last year as part of Mr. Renschler’s push to boost earnings and savings by more closely integrating the German truck maker with VW’s Swedish manufacturer Scania.

Development of the new truck platform is still in the early stages and was one of the reasons why Volkswagen wanted to do the Navistar deal now.

“We are working on common powertrain platforms with MAN and Scania and now Navistar is part of it and can be there from day one,” said Volkswagen’s Mr. Renschler. “We want to have a powertrain-based platform that will be used around the world.”

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VW Buys Stake in Icahn-Backed Navistar in Bet on U.S. Trucks

Bloomberg  /  September 7, 2016

Volkswagen AG will buy a stake in Navistar International Corp. to gain a foothold in the U.S. heavy-truck market, taking a gamble on a struggling U.S. manufacturer as the German company still grapples with the fallout from the emissions-cheating scandal. Navistar shares soared as much as 67 percent.

VW will pay $256 million for a 16.6 percent holding and assume two board seats as part of a deal that includes technology sharing and joint purchasing, the companies said Tuesday. The Wolfsburg-based automaker will pay $15.76 a share, 12 percent more than Navistar’s most recent close. The holding, which VW said it may increase later, puts it on par with the largest shareholders, activist investors Carl Icahn and Mark Rachesky.

“Navistar has always made sense as an expansion target for Volkswagen, which has no presence in the North American commercial-vehicle market,” said Brian Sponheimer, a Gabelli & Co. analyst in Rye, New York. “And Navistar has been burning through cash. This allows dealers to tell their customers that Navistar will be here, in the North American market, well into the future.”

Gaining traction in the U.S. heavy-truck market, dominated by Daimler AG, Volvo AB and Paccar Inc., is key to VW’s plan to forge a global commercial-vehicle operation with higher profit margins than rivals. The marriage isn’t without risk given Navistar’s shrinking market share in the U.S., a country that has also confounded VW. Even before the diesel-cheating scandal, Volkswagen’s car sales were slipping behind competitors in the region.

“Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context,” Andreas Renschler, head of the Volkswagen Truck & Bus division, said in a statement. “We are now taking the next step on our way to becoming a global champion in the commercial-vehicles industry.”

Navistar surged 44 percent to $20.28 at 12:34 p.m. in New York after reaching $23.45 for the Lisle, Illinois-based company’s biggest percentage gain since at least 1980. Volkswagen’s American depositary receipts rose 0.7 percent to $29.54. Cummins Inc., a maker of engines for Navistar, fell as much as 6.6 percent to $117.84 on concern that VW will take over as the supplier. 

Working with Navistar will provide VW with access to technology and designs targeting customers in the U.S., where model lines are very different from offerings in the rest of the world. Many U.S. truck drivers prefer vehicles with an elongated nose, while European operators buy trucks with a flat face due to length restrictions. Volkswagen, Europe’s biggest carmaker, hired Renschler away from Daimler’s truck unit to push a stalled plan to deepen cooperation between its MAN and Scania brands.

Munich-based MAN and Swedish counterpart Scania don’t sell vehicles in the U.S., and the group’s only other large truckmaking operation is a VW-brand division in Brazil focused on Latin America. MAN has a Chinese joint venture with local affiliate Sinotruk Hong Kong Ltd. that sells models in Asia. Entering the U.S. will give VW access to a market a bit smaller than its current home region. Around 240,000 trucks will be sold this year in the U.S., while 290,000 will be bought in Europe, according to estimates from Volvo.

Spending Cuts

Volkswagen Truck & Bus was created in 2015 after the carmaker accumulated majority control of MAN and Scania over the previous decade. The unit has been largely unaffected by the diesel-emissions scandal that erupted at the group’s car operations a year ago. It’s targeting 1 billion euros ($1.12 billion) in long-term cost savings through closer collaboration among its brands.

Renschler reiterated in a conference call with analysts Tuesday that VW is keeping all options open as part of his expansion strategy, including increasing its stake in Navistar and a possible share sale of VW’s trucks division. But he indicated that an initial public offering might not be imminent as “VW has no actual plan” to spin off the unit.

VW and Navistar said they expect to reap combined synergies of $500 million over the next five years.

Navistar posted its first profit in 14 quarters in the three months through April, helped by spending cuts under Chief Executive Officer Troy Clarke.

Navistar is no stranger to dramatic consequences from emissions-related troubles. The truckmaker had to kill most versions of its so-called premium vocational models in 2010 because they lacked diesel engines that complied with U.S. federal air-pollution rules. Navistar’s market share has tanked since its pollution-control technology failed to meet industry standards and brought the company to the brink of collapse.

Joint Work

Clarke said on the call with analysts that the VW deal “is another great reason to consider our products -- that you want to do business with somebody who is going to be participating in leading global technologies, and will have that kind of scale going forward.”

Navistar has had a license to build engines designed by MAN since 2005. The two companies have held periodic talks about additional strategic initiatives since then and began intensive discussions about six months ago that led to Tuesday’s announcement, Clarke said in an interview.

The CEO said Navistar was motivated in part by new U.S. emissions regulations, the first phase of which take effect in 2021. When fully implemented, the rules mean that heavy trucks for the 2027 model year will be 25 percent more carbon-efficient than those sold as 2018 models. Volkswagen is starting work on a new set of engines to meet the U.S. regulations, as well as similar requirements in Asia and Europe, and will turn to Navistar as an engineering partner, Renschler said.

Cooperative Benefits

“We have a plan to be compliant without this cooperation with Volkswagen, but the cooperation allows us to do it far more efficiently, and with a higher probability not only of compliance but of success,’’ Clarke said. “Engineer it once and use it many times around the world -- that’s going to be our approach.’’

Some VW engine components will start appearing in Navistar’s U.S. products in 2019. Clarke said on the call that it’s logical to think that Navistar could build Volkswagen engines in the U.S., but that no decisions have been made. He also said he had no change to announce on Navistar’s contracts with Cummins for engines.

Icahn said in a regulatory filing Tuesday that Navistar agreed that the company won’t support any effort to increase the size of the board to more than 12 directors, as long as an Icahn nominee is a member of the board. Navistar currently has nine directors.

The U.S. company said in a separate statement Tuesday that two directors, James Keyes and Michael Hammes, will retire when shares are issued to Volkswagen or at Navistar’s 2017 shareholders meeting, whichever comes first.

Icahn on Tuesday also agreed to buy the shares of auto-parts supplier Federal-Mogul Holdings Corp. he doesn’t already own for $9.25 each. Icahn, who holds a stake of almost 82 percent, initially offered $7 a share in February, when the stock was trading at $4.98. He had raised his bid to $8 in June.