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Navistar and Volkswagen Joint Venture 450

Navistar and Volkswagen Truck & Bus are defining their wide-ranging strategic alliance.

Leaders from the two companies attended the September IAA truck show in Hannover, Germany and addressed the new deal.

“Our teams can work on next level technologies,” said Navistar CEO Troy Clarke. “It’s not so much about ‘2020’ but where we will be in 10 years and so on. The VW deal does not solve all the problems, but it creates opportunities that did not exist six months ago.” He said that customer feedback on the partnership has been “very positive” and noted that Navistar is “well positioned and prepared for when business in North America picks up.”

Andreas Renschler, CEO of Volkswagen Truck & Bus, said there will always be a difference in truck markets. “Some markets, like China, are 20 years away from our technology; India is 35 years away.” As for North America, he said that 2021 was a realistic timeframe for VW to develop an engine tailored for Navistar.

The alliance includes an equity investment in Navistar by Volkswagen Truck & Bus and framework agreements for strategic technology and supply collaboration and a procurement joint venture.

Anticipated agreements as part of 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, 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 Clarke. "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 can 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 Renschler. "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."

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.

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.

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