VW Seen Weighing Stake in Navistar to Challenge Daimler in North America

German automaker Volkswagen AG is weighing a possible stake in U.S.-based truck manufacturer Navistar International Corp., with an eye on competing in the North American heavy-truck market, a German newspaper reported last week.

Both Volkswagen and Navistar declined comment on the June 10 report in Financial Times Deutschland, calling media reports “speculative” — despite indications from some analysts that such a move could make sense for both companies.

The German newspaper, and a subsequent report by Reuters, said a purchase of Navistar could help Volkswagen narrow the gap with Daimler Trucks North America, which has its U.S. truck-making headquarters in Portland, Ore.

“We cannot comment,” a Volkswagen spokesman told Transport Topics. “These are pure speculations. Perhaps it does make sense that you call me in two months again.”

Likewise, Navistar spokeswoman Karen Denning called the reports “all rumors and speculation.”

“I haven’t seen anything from anybody at an executive management level,” Denning told TT.

But an analyst at CA Cheuvreux, an equities brokerage group that is part of French bank Crédit Agricole Group, said that Navistar potentially may be the “last missing piece” for VW, Europe’s largest carmaker, Bloomberg News reported last week.

Volkswagen owns a controlling stake in Swedish truck and bus manufacturer Scania AB, and Germany’s MAN SE. Both make cabover trucks in Europe, and MAN also does a substantial business in Brazil.

“It’s a logical conclusion,” Alexander Neuberger, a Frankfurt-based analyst at the brokerage unit of Crédit Agricole Group S.A., told Bloomberg. “Volkswagen is aiming to become a global giant in cars and trucks comparable to Daimler, but it lacks a U.S. presence. Navistar is a market leader.”

Volkswagen potentially could pay 6.6 billion euros, about $9.3 billion, to buy Navistar, based on a 25% premium, analyst Neuberger wrote in a note to clients on June 11.

Navistar has a third-place market share in the United States and Canada.

Earlier this month, Navistar, based in Lisle, Ill., reported a $172 million loss in its second quarter, partially triggered by what its top executives said was a “lot of noise and speculation” about pending U.S. Environmental Protection Agency approval of its 13-liter engine and reshuffled top management in a bid to restore profitability.

In the previous quarter, the company reported a $153 million loss.

Navistar chose to use exhaust gas recirculation technology to meet EPA 2010 emissions standards. Other companies’ engines use selective catalytic reduction technology to meet the 2010 emissions regulations.

While SCR manufacturers met the standards outright, Navistar’s 13-liter engine met the EPA standards only by applying credits

it accrued through selling other engines with emissions that exceeded EPA standards earlier. As a result, the company’s strategy has been heavily dependent on gaining EPA certification of the new engine.

Speculation of the possible purchase developed as Navistar, Scania and MAN announced major management changes.

At an investment conference earlier this month, Navistar announced the promotion of Troy Clarke,

then president of Navistar Asia Pacific, to president of truck and engine, a newly created post with oversight of those businesses, as well as parts, product development and purchasing.

On June 2, Scania’s board appointed Martin Lundstedt as its new president and CEO, effective Sept. 1. The same day, MAN’s supervisory board appointed Anders Nielsen CEO of MAN Truck and Bus AG, also effective Sept. 1.

On June 5, Volkswagen announced it was increasing its share of the voting rights in MAN to 75.03% from 73.76%.

Volkswagen said the move was the “next step” for the company to achieve its joint goals in the commercial vehicles business under “Volkswagen’s roof.”

The U.S. heavy truck market currently is divided among Daimler’s Freightliner and Western Star, Volvo and its Mack brand, Navistar’s International, and Paccar’s Kenworth and Peterbilt trucks.

Adding a wrinkle to the Navistar situation, if Volkswagen wants to take a stake in Navistar, it will have to deal with activist investor Carl Icahn, who recently increased his stake in the company to 12% from 10% and who has pushed for Navistar to merge with U.S. heavy truck-maker Oshkosh Corp.

Jeffrey Kauffman, a New York City-based analyst with Sterne Agee & Leach, Birmingham, Ala., said that Navistar shares have moved higher in recent days on market speculation of “activist/acquisition possibilities” raised by market reports.

“While we believe there is reasonable merit to such reports, we note that progress is likely to be slow considering all parties mentioned in recent reports have only espoused the idea,” Kauffman said in a June 12 report.