Clean Fuel News

Volkswagen Taking 16.6% Stake in Navistar

Volkswagen AG on Tuesday said it would take a minority stake in Navistar International Corp., a move to broaden the German auto maker’s U.S. footprint while expanding its global truck-market operations.

VW plans to invest $256 million in Navistar at $15.76 a share—a 12% premium to Friday’s closing price—for a 16.6% stake in the company. It will also have the right to appoint two directors to Navistar’s board. Navistar anticipates annual cost savings of $200 million within five years.

The deal, which was reported Monday by The Wall Street Journal, comes as Navistar deals with the fallout from a run-in over emissions regulations and a declining market share that has left it trailing rivals in a North American commercial truck market wrestling with a slump.

The plan also signals that VW executives feel confident enough to expand strategically in the U.S., even as they work through the fallout from a scandal over the rigging of emissions tests on many of VW’s most popular passenger cars.

The two companies, which have been in on-again, off-again talks since early 2015, have agreed to cooperate on purchasing and developing new products.

VW has long been rumored to be interested in Navistar. The German company is a powerhouse in the global truck market, particularly in Europe and Brazil, but doesn’t sell many large commercial trucks in the U.S. Navistar draws most of its sales from the U.S., Canada and Mexico and has a limited overseas business, making it a potentially good fit for VW. Navistar also has a strong dealer network that provides service and replacement parts.

VW is entering a North American truck market where demand has fallen off significantly after an elevated stretch of truck buying. Production of heavy-duty trucks this year is expected to fall by about one-third from last year’s near-term peak to about 200,000 vehicles. Trucking companies have pulled back on purchases after restocking their fleets with more fuel-efficient trucks in recent years.

Navistar would likely receive a much-needed boost in truck and engine technology from VW. But even with Volkswagen’s deep pockets and commitment to growth, it could be difficult to quickly nurse Navistar back to financial and truck-market health. The German auto maker doesn’t have engines tailored to the U.S. market yet, which it will now have to develop for Navistar.