Volkswagen to Take Big Stake in Navistar

[kscarbel2]

Navistar Announces Wide-Ranging Strategic Alliance With Volkswagen Truck & Bus

Navistar International Corp. Press Release  /  September 6, 2016

- Navistar and Volkswagen Truck & Bus to pursue strategic technology collaboration and establish procurement joint venture with Volkswagen Truck & Bus taking a 16.6% stake in Navistar

- Volkswagen Truck & Bus to invest $256 million in Navistar at $15.76 per share and have the right to appoint two directors to Navistar's board of directors

- Alliance will uniquely position Navistar to provide best-in-class products and services to customers

- Navistar expects to realize cumulative synergies of $500 million over first five years

Navistar International Corporation today announced that it has formed a wide-ranging strategic alliance with Volkswagen Truck & Bus, which includes an equity investment in Navistar by Volkswagen Truck & Bus and framework agreements for strategic technology and supply collaboration and a procurement joint venture.

The agreements expected to be entered into in connection with the alliance will enable Navistar to offer customers expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus's products and components, while better optimizing its product development spend. The alliance will also strengthen Navistar's liquidity position. In addition, the procurement joint venture is expected to leverage the purchasing power of 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, providing Navistar with enhanced global scale.

Navistar expects significant synergies from both the strategic technology collaboration and the procurement joint venture. The company expects the alliance to be accretive beginning in the first year, and for cumulative synergies for Navistar to ramp up to at least $500 million over the first five years. By year five, it expects the alliance will generate annual synergies of at least $200 million for Navistar. This annual run rate is expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.

"We are very pleased to partner with a global leader who shares our view of the world, in an alliance that will deliver multiple benefits and is consistent with our open-integration strategy," said Troy Clarke, President and CEO, Navistar. "Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale. 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 and enabling Navistar to deliver enhanced uptime. Volkswagen Truck & Bus's equity investment will strengthen our liquidity position and expand our financial flexibility, while aligning us with a valuable strategic partner."

"Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context," said Andreas Renschler, CEO of Volkswagen Truck & Bus and member of the Board of Management of Volkswagen AG responsible for commercial vehicles. "We are now taking the next step on our way to becoming a Global Champion in the commercial vehicles industry. The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides."

Navistar will remain a leading, independent truck, bus and engine company, focused on providing best-in-class products and related services to its customers globally and delivering value for its shareholders.

"We expect this alliance will create significant global scale, yielding considerable cost savings for both companies," said Walter Borst, Executive Vice President and Chief Financial Officer, Navistar. "We believe working collaboratively, the two companies can optimize the capital and engineering expenditures associated with next-generation truck and bus engine development, while providing both Navistar and Volkswagen Truck & Bus with opportunities for substantial procurement savings. This alliance marks another step in Navistar's journey to be a stronger, more profitable company."

Equity Investment

As part of the alliance, Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6% of post-transaction undiluted common stock (or 19.9% of pre-transaction outstanding common stock). It will pay $15.76 per share or a 25% premium over Navistar's 90-day volume weighted average price as of August 31, 2016, or 12% over Navistar's closing price on September 2, 2016. Navistar will receive $256 million from the equity investment to be used for general corporate purposes.

 To underscore the long-term nature of the alliance, Volkswagen Truck & Bus has agreed to hold these shares for a minimum of three years. Reflective of its shareholding post-transaction, Volkswagen Truck & Bus will have the right to appoint two directors to Navistar's board of directors.

Procurement Joint Venture

The procurement joint venture will help source parts for both companies, providing Navistar and Volkswagen Truck & Bus with greater scale and competitiveness. It will also provide additional opportunities for Navistar suppliers to gain access to potential global sourcing opportunities, and create improved pricing for end-customers.

Technology Sharing

The strategic technology and supply partnership builds on Navistar's open integration strategy of partnering with the best global companies in the industry to integrate cutting-edge technology. It is expected the partnership will focus on powertrain technology solutions, as well as explore collaboration in all aspects of commercial vehicle development, including advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components. This enhanced collaboration will enable the alliance to share the overall costs associated with future vehicle development.

Navistar products will benefit from Volkswagen Truck & Bus components and technology through licensing and supply agreements entered into pursuant to the framework agreement for strategic technology and supply collaboration, which longer term will generate increased parts sales.

Governance

The strategic alliance will receive oversight from an alliance board, comprising top-level executives from both parties, which will align the product development and procurement processes between the companies.

Timing and Conditions to Close

The closing of the share purchase agreement implementing the strategic alliance is subject to certain regulatory approvals, the finalization of the agreements governing the procurement joint venture and the first contract under the technology and supply framework agreement and other customary closing conditions.

J.P. Morgan is acting as financial advisor to Navistar and Sullivan & Cromwell LLC is acting as legal advisor to Navistar.  

 

[kscarbel2]

Navistar, Volkswagen Announce 'Wide Ranging Strategic Alliance'

Heavy Duty Trucking  /  September 6, 2016

Volkswagen Truck & Bus is taking a 16.6% equity stake in Navistar International Corp. as part of a “wide-ranging strategic alliance” that will initially focus on providing powertrains for Navistar trucks starting in 2019.

The joint venture is based on four pillars:

1. The equity investment: Volkswagen Truck & Bus will acquire 16.2 million newly issued shares in Navistar, representing 16.6% of post-transaction undiluted common stock (or 19.9% of pre-transaction outstanding common stock). It will pay $15.76 per share or a 25% premium over Navistar’s 90-day volume weighted average price as of Aug. 31, or 12% over Navistar’s closing price on Sept. 2. Navistar will receive $256 million from the equity investment to be used for general corporate purposes.

2. Technology sharing: The two companies will collaborate on technology for powertrain systems, as well as other advanced technologies. It will focus on powertrain technology solutions, with VW supplying engines and other powertrain components by 2019, according to Andreas Renschler, CEO of Volkswagen Truck & Bus. It also will explore collaboration in other areas, including advanced driver assistance systems, connected vehicle solutions, platooning and autonomous technologies, electric vehicles, and cab and chassis components. This collaboration will allow the companies to share some of the costs of future vehicle development.

3. A procurement joint venture: Pursuing joint global sourcing opportunities for parts for both companies will give both greater scale and competitiveness. It also can create improved pricing for end customers.

4. Governance: Navistar will add two Volkswagen Truck & Bus representatives to its board of directors, and a separate board will be formed to oversee the alliance.

When asked how the deal will affect Navistar’s deal with Cummins, which is supplying some three-quarters of the engines going into International trucks, Troy Clarke, Navistar president and CEO, said, “We anticipate we will continue to offer Cummins products for a period of time. We’ve got a great partnership with them as well. We’re not speculating or making announcements on that today.”

For Volkswagen, the move is “a major milestone on our way to crating a global champion,” said Renschler, noting that the alliance “allows us access to the North American market and create synergies on the technology and on the human side.”

He pointed out that the alliance offers complementary geographic footprint, with VW being strong in Europe and South America, and Navistar strong in North America and Latin America, especially Brazil.

There has long been speculation that VW would move to acquire Navistar. When asked about potential plans for a further investment in Navistar, Renschler said, “We believe with the alliance we are forming at the moment … is the right thing … It’s a starting point. Our companies can get to know each other … and I think for us it’s a perfect entry and in a couple of years we can see…. All our options are open.”

The timing was right, he added, because VW is currently starting work on its new global powertrain platform and can get Navistar involved in early stages.

Navistar expects cumulative synergies for Navistar to ramp up to at least $500 million over the first five years. By year five, it expects the alliance will generate annual synergies of at least $200 million. That amount is expected to grow as the companies continue to introduce technologies from the collaboration.

In addition, explained Clarke, the deal can help “relieve anxiety on the part of some of our customers [who may have been concerned whether] Navistar [would] have the ability to have access to new technology going forward. 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, I think, will get at that in a big way, and I fully expect will increase consideration of our products. We are improving our market share, it’s just not as fast as we had hoped, and this should increase that. This gives us the opportunity to get on the balls of our feet again.”

Meanwhile, Navistar is preparing to unveil the first of the new trucks in its Project Horizon line later this month.

 

[kscarbel2]

Volkswagen powertrain coming to Navistar trucks by 2019

Truck News  /  September 6, 2016

Volkswagen powertrains will be coming to Navistar trucks by 2019, the two companies revealed during a conference call this morning.

There was no immediate word on what the newly formed strategic alliance will mean for Cummins, Navistar’s current engine supplier.

“Cummins is a great partner for us and the Cummins engine in our product is an outstanding product,” said Troy Clarke, president and CEO of Navistar. “I anticipate we’ll continue to offer Cummins products for a period of time…we’re not speculating or making announcements in that regard today.”

Volkswagen announced today it has taken a 16.6% stake in Navistar. Andreas Renschler, CEO of Volkswagen Truck & Bus, said the time was right to partner with Navistar, because of where Volkswagen is in the production cycle of its next generation powertrain. Partnering now allows the companies to work together on development of the powertrain and integrating it into International trucks in North America.

“For us, it was the right timing,” said Renschler. “Because we are at the moment designing new powertrain components for the whole world…Now Navistar joins us at the right time so we can develop them together and start to see real economies of scale.”

Clarke said the strategic alliance is built on four pillars: A US$256 million cash injection from Volkswagen will improve its liquidity position; the two companies will jointly pursue strategic technological and supply collaboration; the truck makers will conduct the strategic sourcing of parts globally; and a separate board will be formed to oversee the joint venture. Volkswagen will also add two members to the Navistar board of directors.

Current Navistar board members James Keyes and Michael Hammes have resigned from the board.

Clarke said the partnership should bolster confidence among Navistar customers that the brand is on solid footing.

“This will relieve anxiety on the part of some of our customers,” he said. “I fully anticipate we’ll increase consideration of our products, which will drive market share…it gives us the opportunity to get on the balls of our feet again.”

While North American truck orders are currently soft, Clarke said Navistar has increased its order share for eight consecutive months. Bringing a vertically integrated powertrain to its products with the help of Volkswagen will benefit customers, Clarke said.

“There is a well established trend in the industry globally along vertical integration,” he said.

“We can deliver a captive powertrain for Navistar,” Renschler added.

In the meantime, Navistar continues to update its complete product line. Clarke said the first vehicle to be launched as part of its Project Horizon will be revealed later this month. Renschler predicted the partnership will make Volkswagen one of Navistar’s most important technology partners going forward. With the alliance announced, the two companies will begin working together on product development that will include not only the engine, but also axles, transmissions and aftertreatment systems, Renschler said.

The two truck makers now boast global truck and bus production of about 260,000 units per year.

[kscarbel2]

Volkswagen Truck & Bus enters into strategic alliance with Navistar

Volkswagen Truck & Bus Press Release  /  September 6, 2016

• Volkswagen Truck & Bus has agreed to subscribe to a capital increase of US-based commercial vehicles manufacturer Navistar International Corporation, resulting in a 16.6% stake of the outstanding shares
• The two companies will pursue a strategic technology and supply cooperation and establish a procurement joint venture

Volkswagen Truck & Bus GmbH ("Volkswagen Truck & Bus") and Navistar International Corporation ("Navistar"), the US-based commercial vehicles manufacturer, today announced that they have formed a far-reaching alliance that includes framework agreements for a strategic technology and supply cooperation and a procurement joint venture. Volkswagen Truck & Bus will furthermore acquire a 16.6% equity stake in Navistar through a primary share issuance.

With the completion of this transaction, Volkswagen Truck & Bus, which includes the brands MAN, Scania, and Volkswagen Caminhões e Ônibus, will gain access to the key North American market, where it was not previously represented. Andreas Renschler, CEO of Volkswagen Truck & Bus and member of the Board of Management of Volkswagen AG responsible for commercial vehicles, said: "Closer collaboration among our existing brands was a top priority for our commercial vehicles business and we are well on track in this context. We are now taking the next step on our way to becoming a Global Champion in the commercial vehicles industry. The strategic alliance with Navistar is an important milestone and will be very beneficial for both sides."

"We are very pleased to partner with a global leader who shares our view of the world, in an alliance that will deliver multiple benefits and is consistent with our open-integration strategy," said Troy Clarke, President and CEO of Navistar. "Starting in the near term, this alliance will benefit our purchasing operations through global scope and scale. 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 and enabling Navistar to deliver enhanced uptime. Volkswagen Truck & Bus's equity investment will strengthen our liquidity position and expand our financial flexibility, while aligning us with a valuable strategic partner."

Volkswagen Truck & Bus will purchase from Navistar newly issued common shares representing, pro forma for such issuance, a 16.6% stake in Navistar for a price per share of $15.76 and an aggregate purchase price of approximately $256 million (or approximately €229 million at current exchange rates). In connection with this investment, Truck & Bus will be represented on Navistar’s Board of Directors. In addition, both companies have agreed to collaborate closely.

Matthias Gründler, CFO of Volkswagen Truck & Bus, said: "Our collaboration, especially with regard to the powertrain, will considerably increase our synergy potential. Navistar will be able to profit from excellent powertrain technologies and we, in turn, will benefit from significantly higher volumes. Initiating this strategic alliance now will enable us to implement the requirements of Navistar into our joint component platforms from the get-go."

With the strategic technology and supply cooperation, Volkswagen Truck & Bus will become one of Navistar’s most important technology partners. While the partnership will focus on common powertrain systems, it will also enable collaboration in many aspects of future commercial vehicle development.

Additionally, Volkswagen Truck & Bus and Navistar have agreed to establish a procurement joint venture that will pursue joint global sourcing opportunities.

The strategic alliance will receive oversight from an Alliance Board consisting of top-level representatives from both sides.

Under the umbrella of Volkswagen Truck & Bus, Andreas Renschler has been heading the process of bundling medium- and heavy-duty trucks and buses of Volkswagen AG into a robust commercial vehicles group. The Company's strategy includes plans to expand into new regions. Within the next decade, Volkswagen Truck & Bus aims to become a worldwide leading commercial vehicles group in terms of profitability, innovations for its customers and global presence.

The closing of the transaction and the implementation of the strategic alliance is subject to certain regulatory approvals and other customary closing conditions. The closing of the share acquisition by Volkswagen Truck & Bus is further subject to the finalization of the agreements governing the procurement joint venture and of the first contract under the technology and supply cooperation. Closing is expected to be completed in late 2016 or early 2017. Volkswagen Truck & Bus was advised by Rothschild as financial advisor, and Davis Polk & Wardwell LLP, CMS Germany and Bär & Karrer as legal advisors.

[kscarbel2]

Navistar: Why Volkswagen Deal is Bad News…For Cummins

Barron’s  /  September 6, 2016

We view the reports as being potentially negative for Cummins since, at least based on reports we are aware of so far, Volkswagen plans to supply Navistar with engines. Third-party engine manufacturers have not been major players historically in the commercial vehicle manufacturing industry in Europe, as they have historically in North America.

Vertical integration is already one of the most discussed threats to Cummins with, for instance, PACCAR producing about 40% of its own engines currently, up from 0% before 2010.

The trend had also been toward vertical integration at Daimler, the largest commercial vehicle OEM in North America.

To date, Navistar has bucked that trend and has more heavily utilized third-party suppliers in the wake of the 2010 emissions standards and Navistar’s own failings with its in-house engines.

YTD in 2016, 73% of Navistar Class 8 trucks used a Cummins engine.

If reports are correct that Volkswagen intends to sell engines in Navistar trucks, Cummins could face vertical integration risk at Navistar as well, the only OEM which has not yet been a headwind for the company in the North American market.

In fact, we wonder whether supplying engines to the North American market might be the largest motive of the deal from Volkswagen’s perspective, given Volkswagen’s capabilities in that area though its MAN and Scania nameplates.

[kscarbel2]

VW jolt not enough to end Icahn trucking nightmare

Antony Currie, Reuters  /  September 6, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Carl Icahn is trapped in a long-haul trucking nightmare. The investor’s 20 percent stake in sputtering U.S. manufacturer Navistar International got a welcome jolt on Tuesday after the company announced a partnership with Volkswagen’s truck unit.

Even after the 40 percent-plus surge in Navistar’s stock by early afternoon, though, it still needs to rise by another 50 percent or more just for Icahn to break even on the $500 million he has invested.

It has been a downhill ride for the activist since he first jumped into the cab with an almost 10 percent stake in late 2011. Back then, it looked as if he would try to mesh Navistar with rival Oshkosh, another of his holdings. A deal might have produced enough cost cuts to cover a big premium and leave plenty more upside for both sets of shareholders to enjoy.

Icahn and former protégé Mark Rachesky, whose MHR Fund Management has also been a Navistar shareholder for years, helped oust then Chief Executive Dan Ustian in August 2012. He had invested in diesel technology which failed and almost crashed the company.

The recovery has been slow. Navistar lost money in 14 of the past 15 quarters. And its EBITDA margin may only hit 6.6 percent this year, compared with 11.3 percent at rival Volvo, according to Thomson Reuters data. Even if that metric improves by around a percentage point a year for the next three years, as analysts project, Navistar would still be a laggard.

Icahn and Rachesky, whose fund also owns a 20 percent interest, between them control four of Navistar’s nine board seats.

Fellow activist Mario Gabelli, who owns some 12 percent of the company, has for years wanted Navistar to sell itself.

Tuesday’s less decisive deal with VW shows the paucity of options available to turbocharge the business.

The $256 million investment from the German giant is welcome, but the $200 million of annual savings Navistar expects to find after five years is only 2 percent of total operating costs in the company’s most recent full year.

Executives may find more gas in the tank as the joint venture progresses. But such improvements take time. Icahn, Rachesky and Gabelli – already five years into their campaign with nothing to show for it – will have to patiently ride shotgun for a while yet.

[kscarbel2]

Navistar, Volkswagen forge global partnership

Fleet Owner  /  September 6, 2016

The Volkswagen Truck & Bus (VW) division of Volkswagen is buying a 16.6% stake in U.S. truck maker Navistar – a new stock issuance priced at $15.76 per share, equaling some $256 million in fresh cash – as part of a new global joint venture between the two companies that aims to deliver VW-built powertrain options to International-branded trucks starting in 2019, along with “significant” cost savings for both companies especially in terms of global sourcing and parts procurement.

“This is a major milestone on way to create a ‘global champion’ truck business,” noted Andreas Renschler, CEO of Volkswagen Truck & Bus, in a conference call with analysts and reporters.

Renschler, who formerly headed up Daimler AG’s global truck business before joining VW back in early 2015, added that this partnership also enables VW to gain access to the North American truck market.

“It is a highly attractive alliance since it brings together two companies with a complementary geographic footprint,” he added. “Together we cover 25% of global [truck] market. We strongly believe this a very, very powerful global position. Combined, the two companies will build 226,000 commercial vehicle units per year. That gives us significant global scale.”

In terms of savings, Navistar said it expects the alliance to be accretive beginning in its first year, with “cumulative synergies” to ramp up to at least $500 million over the first five years.

By year five, the alliance is expected to generate annual synergies of at least $200 million for Navistar, with its annual “run rate” expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.

Walter Borst, executive vice president and chief financial officer at Navistar, added that he believes the majority of the deal’s expected savings won’t kick in until the early part of 2019 and will come from procurement and “more efficient spend” in regards to “structural costs,” especially on engineering side of business.

“I feel very feel comfortable with our liquidity position and even more comfortable with it with this deal,” he noted on the call. “I sleep better knowing we have over $1 billion in cash on hand [as] we need $500 million to run the business.”

Troy Clarke, president and CEO of Navistar, added during the call that both companies will benefit from the ability to better integrate powertrains thru the deal plus optimize the overall capital spend for both, while lowering the costs associated with developing “next generation” powertrains.

Clarke told Fleet Owner telematics represents another big potential area of cooperation and savings for both Navistar and VW. “If you think about it, all [commercial] trucks are slowly fitting into the same ‘box’ where emissions and connected vehicles are concerned,” he said. “The software may be different but the hardware is the same. Personally I am excited about the opportunities for collaboration here.”

Clarke stressed, though that new partnership won’t substantively affect Navistar’s effort to renew its “entire truck portfolio” in 2018; an effort dubbed “Project Horizon” that will witness a new product introduction every four to six months on average, with the first to be introduced at the end of this month.

“But now we will be able to go in and align product platforms,” he pointed out. “We are certainly counting on structural efficiencies. There is a well-established trend in the global [truck] industry along vertical integration, though it is pacing out differently for countries and participants in the market.”

Clarke emphasized, though, that products springing from the Navistar/VW will be “steered by what customer want” and offers in his words “a tremendous opportunity for us both to be even more customer focused -- not just in terms of products but services going forward.”

A few other key points made during the call:

• Renschler noted that VW Truck & Bus generated gross revenues of 30.4 billion Euros (some $27.17 billion U.S.) in 2015, employs 76,000 worldwide and built 179,000 commercial vehicles units worldwide last year.

• The deal provides VW with the opportunity to claim two seats on Navistar’s board of directors.

• Clarke said Navistar’s gross revenues topped $10 billion in 2015 and said the company’s network of over 800 dealers providing 8,000 service bays and 7,600 technicians is a key focus of the alliance.

• Clarke added that the 13 liter engine Navistar currently offers – its N-13 unit – is derived from a previous deal made with VW subsidiary MAN. “So we have a close engineering relationship with MAN [and] this was the genesis of the opportunity we saw together.” He noted VW’s engine portfolio plays up into the 15-liter “big bore” realm and down into 9 and 10 liter displacement as well. “We will work over the next few months to align our product portfolio,” Clarke said.

• 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. “We’ve got a few in the U.S. and a few other jurisdictions: Mexico, Canada and Brazil other key ones,” he said. “Hopefully regulators see this as we do; that there are no issues in this area.”

• Neither side mentioned how Cummins, a major supplier of engines to Navistar, will be affected by the new partnership. “The Cummins engine in our product truly outstanding; we anticipate offering [the] Cummins product for a long period of time,” Clarke noted. “So we are not speculating or making announcements on that today.”

• Clarke pointed out that while truck orders “are thin for everyone” right now, he believes the new partnership with VW with “eventually” translate into increased market share. “The [truck manufacturing] industry as a whole has to get through this valley, this fall in orders, and get back to order volumes that reflect demand.,” he explained. “That will give us a clearer view. Our products are more than competitive now and [the VW partnership] now gives access the global scale of technology. It gives customers one more good reason to consider Navistar. It allows us to get better and get better fast.”

• Clarke added that the deal would also “relieve anxiety” on part of customers about Navistar’s powertrain systems and its ability to integrate technology. “They don’t want to buy stranded technology; that affects residual values which they use for the down payment on their next truck,” he said. “This deal will get at this in a big way. This also gives us an opportunity to get back on the balls of our feet in the market.”

 

[kscarbel2]

Navistar-Volkswagen deal: What can customers expect?

Fleet Owner  /  September 6, 2016

Two years after taking over Swedish truck maker Scania and combining it with MAN, Volkswagen has agreed to take a 16.6% piece of Navistar International Corp. in a move that will give the German company a foothold in the North American market while boosting the capabilities (and bank account) of Navistar. But what will it mean to truck buyers on this side of the Atlantic? Stay tuned, explained Navistar President and CEO Troy Clarke on a conference call with Wall Street analysts and news media.

And he wasn’t being evasive: It’s simply too early to know the products that might emerge from the deal, one that has only been recently negotiated by small teams of top officials from each company, Clarke noted, and he characterized the initial, strategic aspects of the alliance as the “30,000-foot view.”

Clarke did point out that the current N-series 13-liter engine is derived from a previous licensing agreement with MAN, and so the companies already share “a very close engineering working relationship” on the platform.

“We have plenty of opportunities over the next months to see what we can do to align our product portfolios,” Clarke said, and he agreed that “it would seem logical” that Navistar would produce Volkswagen engines in North America.

He also hinted that a powertrain product could be developed by 2019, an “illustrative” timeframe that’s “not tomorrow, but not well into next decade.”

Likewise, Andreas Renschler, CEO of Volkswagen Truck & Bus, explained the timing is critical, as the truck unit is developing a common, global powertrain platform for MAN and Scania.

“It’s the right timing to do so, because now Navistar can be there from Day 1,” he said.

Renschler also noted that, in his previous role with Daimler, he had been involved in developing the global truck manufacturing strategy.

“It’s always good, if you have the experience, that you don’t make the same mistakes,” he said. “Don’t ask me what kind of mistakes, but with that experience you can expect something from [the new alliance].

As to suppliers that might be displaced with an integrated powertrain platform, Clarke emphasized that “Cummins is a great partner for us. The Cummins engine is truly an outstanding product that’s given us a lot of traction in the market. We work very closely with them, and we anticipate that we’ll continue to offer Cummins products for a period of time. We’re not speculating on that today.”

So far this year, 73% of Navistar Class 8 trucks built have used a Cummins engine, according to an investment note from Stifel, in contrast to the shrinking share of third party engines used by PACCAR (Kenworth and Peterbilt truck brands) and Daimler (Freightliner, Western Star).

“In fact, we wonder whether supplying engines to the North American market might be the largest motive of the deal from Volkswagen’s perspective, given Volkswagen’s capabilities in that area through its MAN and Scania nameplates,” the report suggests. However, “we believe the OEMs will continue to offer all available engines to all customers, many of which have a preference for the Cummins 15-liter engine.”

More broadly, the agreement “relieves anxiety” for some International Truck customers, Clarke explained.

“If you buy trucks, you don’t want to buy something that leaves you stranded when the technology is discontinued at some time in the future. It disrupts the residual value that you often rely upon for payment for the next truck,” Clarke said “This will get at that in a big way. We’re already improving our market share, just not as fast as we had hoped. This will accelerate consideration of our products. This is just the first step, then we’ll concentrate on the next step, and the next step. With this kind of alliance, it gives us the opportunity to get some good stuff done it the market.”

As for the Project Horizon rollout—a series of new product announcements slated to begin next month and continue through 2017—Clarke suggested that there’s nothing in alliance with Volkswagen to distract customers or “disrupt the very positive sentiments that will be created” with the pending launch.

While the deal won’t result in any new products in the near term, customers can expect to see immediate benefits from the global sourcing alliance with Volkswagen, Clarke added.

“There’s a whole bunch of great reasons to consider the International product today,” he said. “This [alliance] is just another great reason.”

.

[DailyDiesel]

With regards to MAN and Scania, how are they treated by VW? Have those two companies been forced to go the "VW Way" or are they allowed to produced products for the customers they know and serve without sending all tribute back to the mothership?

[TeamsterGrrrl]

Actually, that's one of the biggest issues for VW... How do they fit all these corporate cultures into the VW culture? I like VW, but they're a mass marketer, and I'd hate to see the qualities of Scania and Ducati watered down to VW's mass market lowest common denominator. That said, I'd like to see VW teach Ducati how to build a reliable bike that doesn't make a valve adjustment an all weekend job, and International's cab isn't exactly inspiring...

[Red Horse]

If I were Cummins, the following statement from Clarke would have me looking over my shoulder.......We work very closely with them, and we anticipate that we’ll continue to offer Cummins products for a period of time. 

Let's see-every US class 7,8 manufacturer know has a vertical integration link when it comes to engines.

Maybe its time Ford made a diesel engine aquisition.  Seems like it was thirty or so years ago and the rumors were Ford was buying Cummins.  If they could, that would put some sort of a nail I think in the FCA coffin.

[TeamsterGrrrl]

IIRC, back in the early 80s Ford had a 30% stake in Cummins for awhile, and there were test Econolines running around with Cummins B series engines. Perhaps Navistar offered their V8 diesel for a lower price than Cummins to lure Ford away?

[kscarbel2]

4 hours ago, TeamsterGrrrl said:

IIRC, back in the early 80s Ford had a 30% stake in Cummins for awhile, and there were test Econolines running around with Cummins B series engines. Perhaps Navistar offered their V8 diesel for a lower price than Cummins to lure Ford away?

Stock-purchase Deal May Prevent Engine Manufacturer`s Takeover

The Chicago Tribune  /  July 16, 1990

Ford Motor Co., Tenneco Inc. and Kubota Corp. are investing $250 million for a combined 25 percent stake in the Indiana-based Cummins Engine Co., diminishing the likelihood of its takeover and increasing Cummins` prospects for growth.

The agreement between Cummins and the three industrial companies was scheduled to be announced Monday.

As part of the agreement, Ford and Tenneco each will acquire 1.6 million shares of Cummins common stock and Kubota will acquire 799,760 shares at $62.50.

Ford will have a 10 percent stake in Columbus, Indiana-based Cummins, with an option for another 10 percent; Tenneco, a diversified manufacturer based in Houston, will have a 10 percent stake, and Kubota, a manufacturer of farm and construction equipment based in Osaka, Japan, 5 percent. Ford and Tenneco each may designate a representative on the Cummins board of directors.

To meet regulatory review requirements, Ford, Tenneco and Kubota initially will be issued preference stock, which automatically will convert to common stock when the preliminary federal review required by the Hart-Scott-Rodino Antitrust Improvements Act is complete and the New York Stock Exchange has approved the new common for listing.

"This gives us an important new business arrangement and the ability to expand,`` said Henry B. Schacht, Cummins chairman and chief executive officer. ``We are a much stronger company with this agreement. It`s a major vote of confidence for us and allows us to be more competitive. It allows us to remain a U.S.-headquartered company in the capital goods business."

Cummins` customers, employees and shareholders were not sure that Cummins would remain a U.S.-owned company a year ago. The British-based Hanson PLC was viewed as a potential takeover threat for Cummins until members of the Miller family, founders of Cummins, bought back the shares held by Hanson last year. Earlier this year, the Hong Kong-based Industrial Equity Pacific again put Cummins in the unwanted position of being a possible takeover target when Industrial raised its stake in Cummins to 14.9 percent. Cummins and Industrial later came to an agreement in which Industrial would not buy any more Cummins shares or seek a seat on Cummins` board for 10 years.

"The sale of Cummins` equity doesn`t do anything to prevent a takeover, but in terms of perception, if there is a third party again looking at Cummins we now have a number of shareholders with strong strategic interests and we have the ability to meet capital expenditures," a source close to Cummins said.

"It now means that the concern that our customers and shareholders have about being taken over is diminished. Our customers, our shareholders and employees will have peace of mind."

Cummins employs 7,500 people in southern Indiana and has a worldwide work force of 25,100.

The agreement Cummins has with its three investors also calls for the expansion of Cummins and Kubota`s complementary diesel engine product lines and a potential joint venture by the two companies for small diesel engine manufacturing in Europe.

The pact means there also will be more opportunities for Cummins to build on its existing 50/50 joint venture with Tenneco. That part of the agreement couldn`t come at a better time for Cummins.

Like other manufacturing companies that sell to the trucking industry, Cummins was hit hard by last year`s 14 to 15 percent drop in heavy-duty truck sales. Cummins holds more than a 50 percent share of the heavy-duty truck market.

--------------------------------------------------------------------------------------------------------

Ford-Cummins Accord Set

The New York Times  /  July 28, 1990

The Ford Motor Company and the Cummins Engine Company have agreed to several provisions intended to cement their new relationship, according to documents filed yesterday with the Securities and Exchange Commission.

Earlier this month, Ford told Cummins it could supply the diesel engines for its medium-duty trucks, and it became one of Cummins's largest investors when it received a 10.8 percent stake and a board seat in exchange for a $100 million cash infusion.

Though the deal also called for Cummins to sell Tenneco Inc. a 10.8 percent stake and Kubota Ltd. of Japan a 5.4 percent stake, Ford extracted the most protection of the three, partly in recognition of its new business ties with the company.

For instance, the documents state that Ford received a six-year option at no additional cost to buy up to another 10 percent of Cummins. Under most circurmstances, the price would be a 20 percent premium over the then-market price, but no less than $62.50 a share, the same price Ford paid for its current stake.

If Ford accumulates another 10 percent of Cummins, as of 1992 it would be entitled to a second seat on the board, the documents say.

Ford, based in Dearborn, Mich., also has the right to remain the company's largest holder on a percentage basis should Cummins sells a large block of shares to another party. Cummins, based in Columbus, Ind., has also promised not to sell any voting shares to another car or truck manufacturer unless Ford lowered its stake by at least a third.

The three companies are also entitled to a partial refund should Cummins sells additional common shares during the next 12 months at less than $62.50 each. In that case, Cummins would pay Ford, Tenneco and Kubota the difference. Ford and Tenneco are also entitled to whatever terms, other than price and amount, that Cummins grants any other companies owning 10 percent of the concern.

--------------------------------------------------------------------------------------------------------

Cummins engine buys back 1.3 million shares from Ford

The New York Times  /  January 4, 1997

The Cummins Engine Company said yesterday that it had bought back 1.3 million of its common shares from the Ford Motor Company and would repurchase 1.7 million more shares on the open market.

The company also said that Kenneth R. Dabrowski, a vice president at Ford, had resigned from Cummins Engine's board, as planned under a 1990 investment agreement with the auto maker.

Cummins, a maker of diesel engines, said it would issue 3.75 million shares of its common stock to an employee benefits trust.

The stock would be used to finance employee retirement savings programs.

In New York Stock Exchange trading, Cummins Engine rose $1.25, to $46.

After the purchase from Ford, Cummins has about 38.2 million shares outstanding.

[kscarbel2]

Navistar’s Clarke Touts Deal With Volkswagen

Transport Topics  /  September 7, 2016

Volkswagen AG’s pending acquisition of 16.6% of Navistar International Corp. for $256 million will provide the Lisle, Illinois, truck maker with cash soon and then more efficient procurement and better access to new technology for engines and other applications, Navistar CEO Troy Clarke said in an interview.

It could also lead to a merger of the two companies.

“This deal will make us better, faster,” Clarke told Transport Topics on Sept. 6, several hours after the deal was announced.
Clarke, Navistar’s CEO since 2013, and his new partner, Volkswagen Truck & Bus head Andreas Renschler, dodged specificity on merger questions, neither guaranteeing one nor ruling it out.

“We’re excited to work together,” Clarke said, adding, “Let’s leave the next chapter open for today.”

Renschler, the head of Daimler AG’s global truck unit from 2007 to 2013, said the deal helps turn VW into a “global champion” of truck-making, and as for the possibility of a full merger, “all options are open.”

When complete, the cash-for-new stock deal would give VW an ownership stake very similar to investors Carl Icahn and Mark Rachesky. Those two investors each have two seats on Navistar’s nine-member board of directors, and Volkswagen Truck & Bus, which is based in Brunswick, Germany, will get that, too. Collectively, VW, Icahn and Rachesky will own about half of Navistar.

Both Clarke and Renschler described the agreement, roughly six months in the making, as a broad framework that will be filled in over time by working groups to be named later.

The two manufacturers stressed powertrain components in their announcement: engines, transmissions and axles.
Clarke said Navistar’s N13 diesel truck engine is an example of the cooperation between the two companies that predates this week’s deal. The N13, formerly the MaxxForce 13, is based on MAN SE’s 13-liter engine. MAN is one of VW’s three main commercial vehicle brands, with Scania AB and VW being the other two.

Clarke said the ability to use VW technology through a licensing agreement is highly desirable.

“Scale means a lot on technology because the costs [of research and development] are high,” he said, adding that Navistar and VW also share an interest in telematics and connected vehicles, and cooperation on those fronts could arise from the recent agreement.

The procurement benefit comes from VW’s greater size. If Navistar can piggyback on Volkswagen’s purchasing power, it could save the company $500 million over five years, Navistar said.

The two parties said the deal must be approved by the Federal Trade Commission and/or the Justice Department, in accordance with the federal Hart-Scott-Rodino Act. The FTC’s website said the target for judgment on an application is 30 days after formal filing, which had not taken place by Sept. 6, the companies said.

Clarke said he expects the deal will be completed later this year or in early 2017.
.

[RoadwayR]

On 9/7/2016 at 8:21 AM, Red Horse said:

If I were Cummins, the following statement from Clarke would have me looking over my shoulder.......We work very closely with them, and we anticipate that we’ll continue to offer Cummins products for a period of time. 

Let's see-every US class 7,8 manufacturer know has a vertical integration link when it comes to engines.

Maybe its time Ford made a diesel engine aquisition.  Seems like it was thirty or so years ago and the rumors were Ford was buying Cummins.  If they could, that would put some sort of a nail I think in the FCA coffin.

Are you suggesting Ford buy Cummins?  I see no reason why they would want it, Ford manufactures all their own diesels in-house.         

[TeamsterGrrrl]

Wouldn't fit with the "one Ford" strategy. Ford is dropping out of partnerships and joint ventures, and has cut back to just two brands, Ford and Lincoln.

[Svin]

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.

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.

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.

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.

 

This is the first step to take full control of Navistar, but they (VW) have time. In 2018/2019 MAN gets a new cab and there must be one engine platform for both brands (MAN and Scania) except the V8 (only for Scania) . Scania gets MAN axles and MAN Scania gearboxes. When International leans completely on VW technics and Cummins is out, they (VW) have full control. At that time the diesel scandal is behind them and paid, then they can buy the rest of Navistar. VW makes no secret of it that they want to be number one in the car and truck industry. 

 

 

 

 

[Red Horse]

11 hours ago, RoadwayR said:

Are you suggesting Ford buy Cummins?  I see no reason why they would want it, Ford manufactures all their own diesels in-house.         

More like a crazy thought.  Ford manufactures the 6.7 Power Stroke as well as a bunch of small diesels in Europe (as well as the 3.2 used in the new Transit- I think it's built in Spain) but no big bore engines-unless you count the Ford Otosan engines built in Turkey under license from Iveco.

[RoadwayR]

I remember when Ford took a stake in Cummins, and this thread got me thinking about those days.  There was a lot of speculation that Ford was going to steal away the B5.9 from Dodge for the F-250/350, but the truth was Ford needed medium duty diesels for the F series and Cargo.  The Cat 3208, DDA 8.2L, and the New Holland diesels were all being phased out.  Around 1993 the B5.9 and C8.3 started showing up in Ford mediums, painted gray with Ford emblems on their valve covers.  The 5.9 was called the 'FD1060', the 8.3 was the 'FD1460'.  Worked out O.K..  It was around that time I was thinking Ford was getting serious about medium/heavy trucks, the new Louisville's (HN80) were on the way and if Ford were to exercise their Cummins stock options they could conceivably be a real player.  Could have been......  I had high hopes for the HN80, but it seemed the project was about 3 years late coming out, and when it did it was in fits and starts.  A really nice looking long nosed conventional was trotted out to all the truck shows, but it would seem Ford only built the one (anyone know where it is?).  My people never bought any so I had no first hand experience with the new Louisville's, but word was they were not that great.  We continued to buy a lot of Cummins powered medium duty F series, but around the summer of '96 things were starting to get downright weird.  Rumors were flying around that Ford was going to drop the all medium F's and Cargo's for 1997.  That didn't make any sense at all, unless the HN80 was to include some medium duty models.  It would seem that was the plan, but it sure didn't work out that way.  I was very surprised to learn that Ford was selling out their heavy truck line to Freightliner so soon after introducing the new Louisville line.  I could see Ford wanting out of that business, but wouldn't it have made more sense to do so before spending all that effort on the HN80?  I guess at the last minute Ford decided to keep the medium duty F's around, but they moved production to Mexico and drastically cut back on options.  At this point we gave up on Ford mediums, we couldn't spec. them for most of our applications, and our spec. writer said the quality of the Mexican built F's was atrocious.  Freightliner here we come, bought some GM's and International's too..  A medium duty HN80 eventually did come out, more or less, as the Freightliner Acterra.  Ford stuck a 1999 Super Duty cab on the 1980-vintage F series medium duty chassis and that was the 'new' 2000 F-750 and that kept them in the game until the 'Blue Diamond' trucks came out.  I still think that was a good idea for Ford, but due to some diesel engine problems that deal went down the tubes and now Ford is back with this seemingly half-hearted in-house 'new' Super Duty 650/750.  GM will move in as Navistar's new joint venture medium duty customer, and I think that will eventually be a pretty big deal for both of them.

[TeamsterGrrrl]

I like the "one Ford" concept, makes a lot more sense than trying to fool the customer with a half dozen or more brands of the same vehicle like GM did and now VW seems to be following that bad example. but getting out of tractors and then big trucks was one of Ford's biggest mistakes... The volumes are small, but with those markets now consolidated they're profitable. There's also a lot of halo effect and economies of scale as the big trucks and even tractors share parts with smaller trucks and cars. And when a Transit customer needs a bigger truck, you don't want to force them over to the Freightliner dealer and have Daimler seduce them away with a package deal on an M2 big truck and a fleet of Sprinters!

[RoadwayR]

It doesn't make economic sense for a company like Ford to build a full line of medium/heavy trucks.  Whatever they make per heavy truck is minuscule compared to what they can make on a light truck, and Ford is far better at running high volume assembly lines then the type of line required for a specialized heavy truck.  KTP generates FAR more profits now than it ever did as a medium/heavy truck facility.  The 'halo' effect and 'one stop commercial vehicle shopping' are minor factors.  I have been in fleets for over 30 years and it isn't something we consider much at all anymore.  We have found the best mix for us is GM for class 3, Ford and Isuzu for class 4/5, and Freightliner for for class 6 and larger.    

Edited September 23, 2016 by RoadwayR

[james j neiweem]

Not only is the Navistar board of directors letting VW kick them in the teeth but Navistar will be  kicking Cummins in the teeth as well. The old Europe Royal money is steam rolling America.