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September 7, 2016

Volkswagen to Rescue Navistar

Well, excuse me if I crow a little here. . .  On July 7th 2012 I posted “Told You So” in this blog, and I invite you to go back and re-read. In the conclusion to the 2010 engine debacle, I predicted that Navistar’s savior would likely be Volkswagen.

Back then, I reasoned it would be a fire sale (and indeed at today’s tragic stock price, it is) but it is not to be the acquisition I assumed. It is a “strategic alliance,” with VW buying a 16 percent share of NAV to allow both companies to share product, technology and purchasing muscle around the world.

The writing was on the wall since Andreas Renschler quit Daimler Trucks and went to work for VW Trucks and Buses. The company had acquired already the German heavy truck manufacturer MAN and the Swedish producer Scania to add to its own Latin American heavy truck maker Volkswagen Caminhões e Ônibus in Brazil.

And the company has been very public in stating it not only wants to be the biggest car maker and truck maker in the world, In cars it has to get over its dieselgate issue which will cost several tens of billions of dollars – and which may be the reason that the NAV deal is a strategic alliance instead of an acquisition – but there’s no doubting it’ll get back there. In trucks, VW could never hope to overcome rival Daimler in heavy and medium trucks until it had acquired a North American distribution and truck making partner.

Now it has.

And Andreas Renschler was very much the architect of Daimler’s worldwide domination in trucks, with very successful partners in India and China. He knows how it is done. Make no bones about it, Volkswagen Truck and Bus has thrown down the gauntlet with this announcement and with Teutonic efficiency and determination it will strive to achieve that number one position.

Navistar gets a boost in investment from the injection of Volkswagen’s cash to purchase the stock position. That will help initially and then the savings that worldwide purchasing can bring can lower Navistar’s costs by $200 million within five years. Corporately, over the VW trucks and buses worldwide, this may reach $500 million, half way to the target billion dollar savings on the truck side Renschler has promised the VW board.

More importantly, the technology component of the alliance brings some very capable but underfunded technology engineers on the Navistar truck side into the VW truck fold. Scania is a very smart company with a very good understanding of safety and autonomous trucks, MAN has an office somewhere in its buildings with Rudolf Diesel’s name on the door. Yes, he was there when it was Machinenfabric Augsberg von Nurenberg.

Indeed, identified in the news release laying out the first steps of the alliance is the fact that VW will supply engines to Navistar for its International trucks. They could be Scania, or VW from Brazil. Or MAN engines from Germany. The irony there would be that the ill-starred MaxxForce 13 liter was based on an MAN engine but that Navistar engineers could not get to work with Advanced EGR. Let me think . . . did I predict that. Oh yes!

This whole engines supply scenario must have some worried people in both the heavy duty N13 (nee MaxxForce 13) engine plant in Mississippi and over at Cummins in Columbus, IN. There are customers still buying the Navistar N13 engine with its Cummins aftertreatment, though 75 percent of International production is now Cummins as customers who like the Prostar+ truck opt for Cummins reliability, durability and economy.

And that, by the way, is going to get a significant boost for 2017. In a recent press event, Cummins predicted a 10 mpg truck is entirely do-able with its latest X12 and X15 engine platforms for 2017.

For everybody else at Navistar, there must be a jaunty lift in their steps as they head for their cars at the end of the day. More cash to run the business and gain market share and one of the world’s great companies at your back: why wouldn’t you feel good about the future.

Go back to “told you so”. I said Navistar was a lucky company . . .