Caterpillar And Navistar To Pursue Strategic Alliance
Cat And Navistar To Focus On Global Truck Business And Cooperate On Engine Technologies
Caterpillar Inc. (NYSE: CAT) and Navistar International Corporation (Other OTC: NAVZ) have signed a Memorandum of Understanding (MOU) to pursue global on-highway truck business opportunities and cooperate on a variety of engine platforms. The two companies intend to focus on global truck opportunities, including North American severe service construction trucks, as well as technology development for engines worldwide.
“We are pleased to be matching the formidable talents and technology leadership of two industry leaders to serve an expanding base of engine, truck and equipment customers worldwide,” said Jim Owens, Caterpillar Chairman and Chief Executive Officer. “As the world leader in construction equipment and diesel engines, Caterpillar is now positioning itself for growth in the on-highway truck market. This is an important step for Caterpillar and we look forward to working with Navistar for the continued benefit of our customers.”
“This relationship is a perfect example of Navistar’s strategy of growth through leveraging our own assets and those that others have built,” said Daniel C. Ustian, Navistar Chairman, President and CEO. “In partnership with Caterpillar we intend to extend our leading-edge product focus that we have in North America into the rest of the world.”
Through this alliance, Caterpillar plans to target a 2010 introduction of a North American Cat branded heavy-duty truck for severe service applications, such as road construction, large infrastructure projects and oil and petroleum development. Concurrent with this new strategic direction, Caterpillar has determined independently that it will not supply EPA 2010 compliant engines to truck and other on-highway original equipment manufacturers (OEMs).
“Caterpillar and our dealers will continue to provide product support and service beyond 2010 for all Caterpillar on-highway engines regardless of truck brand,” said Douglas R. Oberhelman, Caterpillar Group President. “This new truck—targeted for 2010—will incorporate the legendary quality of Caterpillar’s construction and mining machines and provide construction customers a one-stop solution. In addition, with nearly 90 percent of our engine business being off-highway, we’ll continue to concentrate on our substantial and growing opportunities to supply engines in the petroleum, marine, electric power generation and industrial markets—as well as produce engines for our own construction and mining equipment.”
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.
Global Truck Collaboration
The companies intend to work together to develop, manufacture and distribute commercial trucks in select regions outside of North America. The product offering would include a full line of medium and heavy-duty trucks in both conventional and cab over designs.
“The combination of Navistar’s truck design, development and manufacturing expertise and Caterpillar’s unparalleled worldwide distribution creates a significant advantage for global customers through the ability to offer the right vehicle for the right application through more than 4,700 points of distribution around the world,” said Dee Kapur, President, Navistar Truck Group. “The North American Caterpillar distribution system provides expanded reach for severe service trucks with big bore power, a segment where Navistar has traditionally not been as focused.”
“This is a natural extension of Caterpillar’s more than 40 years serving on-highway customers with proven, award winning technology—combined with unsurpassed global distribution and product support,” said George Taylor, Director of Caterpillar On-Highway Engines.
In addition to the United States and Canada, Navistar has a substantial distribution network in Mexico and Latin America. Caterpillar currently sells on-highway truck engines in Australia and New Zealand, Mexico and throughout Latin America, as well as in the United Kingdom, Belgium, Russia, China and South Africa.
Under the alliance, Caterpillar and Navistar plan to cooperate on engine development, incorporating “best in class” technologies from both companies. Caterpillar and Navistar intend to work together on development of mid-range engines for diesel applications, such as school buses and utility trucks. This engine development would support each company’s stated path not to utilize urea-based Selective Catalytic Reduction (SCR) technology.
“There are many opportunities for technology sharing and development that would result in the ability to better meet the worldwide demand for diesel engines in both on and off-highway applications,” said Jack Allen, President, Navistar Engine Group.
“In the past 15 years, Cat has become significantly less dependent on the sale of on-highway truck engines in the total contribution of our global engine profitability,” said Oberhelman. “Our global power systems business has grown significantly—in fact we supply approximately 400,000 diesel engines annually outside of the on-highway truck market. We intend to remain the world leader in clean diesel engines, and this collaboration is a key enabler.”
Remanufacturing Growth and Additional Synergies
Through the alliance, the companies also intend to expand their existing remanufacturing relationship to include Navistar’s recently introduced MaxxForce on-highway engines. The companies expect to pursue additional remanufacturing opportunities as new vehicles and engines are developed.
Caterpillar and Navistar plan to explore opportunities to leverage their scale. Combining raw material and other commodity purchases is just one example of how the two companies can work together to reduce costs.
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