Navistar Eyes World Presence Through Caterpillar Network

This story appears in the June 16 print edition of Transport Topics.

Caterpillar Inc. and Navistar International Corp. said they will pursue business opportunities around the world together, as Caterpillar bowed out of the North American heavy-duty engine market last week.

The deal, announced in press releases and explained in telephone press conferences on June 12, gives Navistar a global marketing and service network that it has lacked, and gives Caterpillar a graceful way out of the U.S. truck engine business. Caterpillar said it will continue to sell engines in countries where emission standards are lower.

Navistar said that as part of the arrangement, it would become a global manufacturer of heavy- and medium-duty trucks and engines, with trucks to be produced in both conventional and cab-over-engine configurations.

Despite its name, Navistar International has been the most North American-oriented of the four major heavy-duty truck-making corporations. Daimler AG and Volvo AB are based in Europe, while Paccar Inc. produces vehicles in Europe as DAF and Leyland and in Australia.

Daniel Ustian, Navistar’s chairman and chief executive officer, said the alliance would quickly enhance his company’s global footprint. “We’re leveraging our own assets and those of others, too. We don’t have to start from scratch.

“The opportunity with this is that we won’t have to spend a lot of money, yet it’s exactly what we’ve said we need to address internationally. It fits perfectly,” Ustian said. Neither company offered a dollar figure to characterize the alliance’s value in terms of revenue or profit.

Ustian, some of his vice presidents and three Caterpillar managers were all enthusiastic about the proposed alliance, but in a conference call with reporters, spoke more of goals and opportunities rather than specific timetables for new products.

Details of the deal between the two firms outlined in a memorandum of understanding, or MOU, remain to be determined.

A joint statement said the companies have “commissioned teams to focus on the truck and engine opportunities. The initiatives contemplated by the MOU are subject to completion of due diligence, execution of definitive agreements and regulatory approvals.”

A natural point of attraction between the two companies, the executives said, is that they have both chosen exhaust gas recirculation technology, or EGR, as the basis for their future engines. In contrast, Daimler, Volvo and Paccar will proceed with selective catalytic reduction, or SCR, to meet 2010 U.S. standards.

Caterpillar’s George Taylor, global on-highway director, said the North American truck market is mature, and “the writing is on the wall” for the fate of independent engine makers such as Caterpillar.

While the heavy-truck market is “increasingly difficult” for independent suppliers, Taylor said the worldwide truck market sells 1.7 million vehicles a year, and opportunities are better there.

In a government filing, Caterpillar said it already has more than 60 manufacturing, remanufacturing and overhaul facilities outside of North America for its construction, mining and forestry machines, diesel and other engines, and power generation equipment.

Cat also has 4,700 worldwide distribution points for its product lines.

The product that appears to be the most advanced, conceptually, is a North American severe-service vehicle that would carry the Cat brand.

Ustian, who has said in investor conferences that product and geographical diversification are among his top priorities, said Navistar’s strongest international presence to date is in Mexico, South Africa, Chile and, to a lesser extent, Russia and Poland. It also has a joint venture with India’s Mahindra Group.

Ustian said products that arise from the alliance could carry either an International or a Caterpillar brand, depending upon which company is better known in a particular market.