September 7, 2016 Vol. 13 No. 18

Well, it finally happened. Rumored for many months, if not years, and now a fait accompli, Volkswagen Truck & Bus has bought a piece of Navistar International. While the gossip mill mostly envisioned an outright purchase by the German giant, yesterday’s announcement described a less dramatic deal: VW is buying a 16.6% stake in the Illinois company. It will pay US$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 US$256 million from the equity investment to be used for general corporate purposes.

Navistar shares had risen 40% on the news by the end of trading yesterday, Sept. 6, a gain not seen in over three decades.

The two companies are calling it a “wide ranging strategic alliance” that will initially focus on providing powertrains for Navistar trucks starting in 2019. Indeed, VW Trucks chief Andreas Renschler speaks of economies of scale, citing the extreme costs involved in developing engines to meet future emissions regulations. He doesn’t, by the way, rule out a full-bore merger of the two companies at some point in the near future if the new partnership goes well.

For Volkswagen, the move is “a major milestone on our way to creating a global champion,” said Renschler in a conference call Tuesday morning, alongside Navistar CEO Troy Clarke. He noted that the alliance “allows us access to the North American market and creates synergies on the technology and on the human side.”

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

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.

SO WHAT IS VOLKSWAGEN in the truck world? Some might be surprised to know that it makes medium-duty and light-heavy trucks, sold mostly outside Europe, and it’s especially strong in Brazil. But it also owns Sweden’s Scania and Germany’s MAN, and all told it produces trucks at 25 sites in 17 countries.

Both MAN and Scania produce their own engines. Scania also makes transmissions, its Opticruise automated manual being well regarded.