Caterpillar, Navistar to pursue truck and engine alliance

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Caterpillar Inc. has decided not to supply EPA 2010 compliant engines to truck and other on-highway original equipment manufacturers, but it has struck a deal with Navistar International Corp. to collaborate on engine technologies and to market a Cat-branded severe service truck through Cat dealers.

In a long-anticipated announcement, Caterpillar and Navistar revealed June 12 that they have signed a memorandum of understanding 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.

Caterpillar will work through its alliance with Navistar 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.

“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.”

Caterpillar, which will continue to offer current-technology engines through 2009, reassured its existing on-highway customers that they could count on the company. “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.

Oberhelman said the new severe service truck would give Caterpillar’s construction and mining customers a “a one-stop solution” for its equipment needs. “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.”

Caterpillar and Navistar have formed teams to explore their truck and engine opportunities. The alliance contemplated by the MOU is subject to completion of due diligence, execution of definitive agreements and regulatory approvals.

Global initiatives

Caterpillar and Navistar envision a partnership that goes well beyond North America. The companies plan to develop, manufacture and distribute a full line of medium- and heavy-duty trucks in both conventional and cabover designs in select regions outside North America.

“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, Navistar Truck Group president. “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.”

Navistar has a substantial distribution network in Mexico and Latin America, while 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.

Engine cooperation

Under the alliance, Caterpillar and Navistar plan to cooperate on engine development, including diesel engines for mid-range 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, Navistar Engine Group president.

“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.”

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.

Today’s announcement follows months of speculation within the trucking and construction industries regarding an upcoming alliance or possibly even an ownership arrangement between Caterpillar and Navistar. Until Thursday, officials of both companies had declined to confirm any such talks, but nor did they deny them.