This week, Volkswagen and Navistar consummated their long-rumored courtship when the German truck maker shelled out $265 million for an almost 17 percent ownership stake in the Lisle, Ill.-based maker of International trucks.
With each red ink-stained passing quarter it seemed increasingly likely Navistar would forge a partnership or be swallowed outright, and Volkswagen has always seemed like the most likely dance partner.
Exactly who picked up the phone first is unclear, with Daimler ex-pat and VW big truck boss Andreas Renschler saying only the time for a partnership was right for both companies.
Volkswagen’s endgame here is fairly clear: Use International’s heavy truck dealership base – the largest in the U.S. – to invade American highways and establish a footprint. Renschler openly discussed his goal for Volkswagen’s truck business to become “a global champion” and it needs a conquest in the States make that case.
Navistar quarterly loss widens as sales slide
Revenue in the quarter slid 18 percent to $2.1 billion thanks in part to soft industry conditions, primarily in the Class 8 market.
Volkswagen gets in on the ground floor. Navistar has lost money in 15 of the past 16 quarters and the market for heavy trucks is in a funk. But despite sagging orders industry-wide, International has gained order share every quarter this year.
For Navistar, it allows the company, possibly by 2019, to offer some semblance of an integrated power train – an option the company currently lacks with its proprietary N-Series and Cummins engines and a patchwork of third-party axle and transmission providers.
What all this means for Cummins remains to be seen.
Troy Clarke, Navistar’s CEO, said the company was committed to Cummins “for a period of time,” adding that International would include Cummins on all of the product launches taking place for at least the next year and a half. In perhaps the most stern endorsement, Clarke says customer demand would ultimately dictate which engines are offered in which applications.
Currently, more than 60 percent of International’s on-highway trucks get a Cummins engine on the assembly line. That rockets to more than 80 percent across all the company’s products.
While a Navistar divorce from Cummins wouldn’t be a first for the pair, its imminence seems unlikely for option-heavy International, which Clarke calls “the most customer-centric truck company.”