VW buys stake in Navistar
VW will pay $15.76 per share for the stake, which is part of a collaboration that includes technology sharing and joint purchasing, Navistar said today in a statement. VW will receive two board seats for its stake and the companies expect to reap combined synergies of $500 million over the next five years.
The deal “marks an important milestone for our commercial-vehicle business to gain a foothold in the North American market and develop a global industry champion," said Volkswagen Chairman Hans Dieter Poetsch.
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 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, has tapped Andreas Renschler, 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 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.
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 Lisle, Ill.-based 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.