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THE TIES THAT BIND | Feature – TRATON Group and Navistar International move closer together

TRATON Group and Navistar International move closer together

The return of the International brand has followed an on-again/off-again/on-again relationship between Navistar International and IVECO Trucks Australia that significantly damaged the brand reputation.

A company restructure in 2010 resulted in the sudden departure of the previous executive team of Daniel Ustian and Dee Kapur, subsequently replaced by ex-General Motors executive Troy Clarke as CEO, who inherited the job of turning around the financial fortunes of the company in order to keep the iconic brand in the market.

What became obvious from the moment that Troy Clarke took up the reins was that to succeed in business the future would require a suitable partner, with whom to share development costs and benefit from the improved purchasing power that results from size and presence in the market.

While these developments were occurring at Navistar, Andreas Renschler, the previous head of Daimler Truck and Bus division, was shifting camps to take the role of CEO of the new VW Truck and Bus Division in Germany, which subsequently was to rebrand in 2018 as the TRATON Group.

The creation of TRATON Group combined the operations of Volkswagen Truck and Bus with Scania and MAN, with the bold statement that the final entity created would achieve the dominant position amongst the world’s truck and bus manufacturers.

With Navistar actively looking for a partnership with which to forge a strong future, the attraction for the TRATON Group was the opportunity to obtain a 17 percent stake in Navistar Group and International Trucks of North America.

For Navistar, joining with TRATON gave it the advantages of greater size and industrial connectivity to improve its buying power, while for the TRATON Group the deal provided an entry into the North American market via the already well-established Navistar International dealer group.

It’s with this renewed strength and improved future potential that International Trucks can now look to its growth in global markets such as Australia. Having established the ProStar, it can subsequently pave the way for its successor, the next-generation International LT.

The combination of the industrial strengths and synergies that come together in TRATON Group provide the means to reduce overall engineering costs by developing a joint powertrain family using a common base engine for all the brands it represents.

It is expected that this engine and driveline will be installed in more than 50 percent of all heavy-duty trucks produced by the TRATON Group from 2025 onwards. TRATON expects major synergies to result from this and other powertrain platform efforts, given that the powertrain usually represents more than 60 percent of a truck’s value.

Today, Navistar in North America can offer its customers a 12.4-litre engine, known as the International A26, which is based on the MAN D26 engine and used in International trucks from 380 hp to 480 hp.

By capitalising on the available synergies through TRATON Group, and with increasing commonality of components, it’s highly likely that selected International trucks will be sporting a broader range of MAN-derived engines, together with Scania-supplied Opticruise automated manual transmissions. Cummins engines and Eaton transmissions will remain optional in selected applications.

Back in 2018 at the IAA Commercial Vehicle Expo in Hanover, Germany, PowerTorque met with Troy Clarke, president and CEO Navistar International Corp; Henrik Henriksson, CEO and president of Scania; Eric Tech, senior vice-president within the TRATON Group representing Navistar International; and Chris Ito, director of innovation and design at Navistar International.

Henrik Henriksson and Eric Tech gave their views also on the opportunities now presenting themselves through the TRATON Group.

“We are very happy with the powertrain options that we have kicked off, these are progressing even better than we had hoped. With some of the existing things that the group is working on, I think you’ll see some really good results in the powertrain area,” said Eric Tech.

Continuing, Mr Henriksson added: “From a group perspective the idea is to create a common platform up to say 60 percent common, and then adapt it to the needs of the individual brands and the local markets and we need to work together for that.”

When asked if he was pleased with the progress of the return of International to the Australia market and the future opportunity to launch the next generation LT product range, Mr Clarke said: “I am, but that’s really because of the next phase.”

“The International LT is a new platform. I look at that and it’s a great truck for the Australian market. They really know the business (Australian operators) and they helped us to improve when we first went over there,” he said.

“The LT is an even better truck (than ProStar) and gives us much better opportunities. We can put in the right-hand drive option much more easily, with the design enabling us to move the engine back and have a much larger pedal area for the driver on the right-hand side, so we don’t compromise anything for the driver.

“It’s our intention to be a major competitor to Freightliner’s Cascadia. We haven’t made an announcement yet and don’t have a date yet. There are a couple of really good pointers over there, we just want to be one of them.  We’ll let the market figure out how we go,” added Mr  Clarke.

A year later – and in a further interview with Troy Clarke, this time at the North American Commercial Vehicle Show in Atlanta, Georgia – revealed that he had put a hold on the introduction of the International LT to the Australian market, while Navistar International reviewed the performance of the brand and once again considered the effectiveness of the current distribution operation that is aligned with IVECO dealerships.

The effectiveness of any truck brand in the market today depends on many factors, with one of the main ingredients being the synergies available that arise from partnerships that result in long-term cost savings.

The association of Navistar International with TRATON Group provides a two-way exchange of benefits. For the American truck maker, it provides better global buying power as it leverages off the various divisions of MAN, Scania and VW Truck and Bus. For the German mega-truck conglomerate, it provides an entry into the US market for its powertrain component divisions producing engines and transmissions, used in association with International-branded products. But there is more at stake.

Scania is looking at opportunities in the North American and Canadian markets, particularly in mining application, where its NTG model the XT, specifically adapted for mining operations, can and does offer improved productivity over the current alternative of American-sourced conventional models.

The first Scania-badged cabover trucks are already in service in the Canadian mining industry with factory support assisted by the Navistar International network. In remote area mining, Scania, with the assistance of Navistar International is creating pop-up workshop facilities, in much the same way as it offers product support to remote mining areas in the Australian market.

Now, as of January 31, the TRATON Group and Navistar International are moving towards a closer relationship with news agency Reuters reporting that TRATON had offered $US35 ($AUD52) a share, or $US2.9 billion ($AUD4.35 billion), for the shares of US truck-maker Navistar International that it does not already own, and investors bet the bid will go higher.

Navistar shares shot up by 50 percent to just over $US36 a share ($AUD54) in after-hours trading following TRATON’s proposal, suggesting investors expect a potential deal could be richer than the opening offer. TRATON said its offer was subject to Navistar and TRATON reaching a merger agreement.

Truck makers across the globe are struggling to stem the costs of developing next-generation powertrains during an industry downturn, a step which is forcing the truck makers to seek new alliances to share costs. Navistar and VW in 2017 said they would collaborate on electric truck development.

Volkswagen has made its interest in buying the remainder of Navistar clear since acquiring an initial 16.6 percent stake in 2016, which has since grown to nearly 16.8 percent. TRATON and Navistar have been collaborating on purchasing and certain technology developments, aiming to cut annual costs by $US200 million ($AUD300 million) a year.

TRATON will have to win over Navistar’s largest shareholder, financier Carl Icahn, whose fund controls 16.9 percent of Navistar’s shares. Icahn and two other activist funds, Mark Rachesky’s MHR Fund Management and Gabelli Funds, together own 40 percent of Navistar’s shares, according to Refinitiv data.

Rachesky and another MHR executive, Raymond Miller, sit on Navistar’s board, as does a representative of Icahn’s interests. TRATON’s Andreas Renschler and Christian Schulz, also have seats on Navistar’s board.

The official response of TRATON Group was outlined by a joint press statement made by Dr. Marc Langendorf, head of corporate communications for Volkswagen AG and Julia Kroeber-Riel, head of group communications for TRATON SE, which stated:

“Since 2017, TRATON and Navistar have benefitted from a strategic alliance that has delivered significant value to both companies through increased purchasing power and the integration of new technologies.  As the global commercial vehicle industry continues to evolve, TRATON believes that the proposed transaction is the logical next step and would result in even greater benefits.”

If the proposed offer were accepted and the acquisition completed, the combined company would have an enhanced ability to meet the demands of new regulations and rapidly developing technologies in connectivity, propulsion and autonomous driving.  Combining TRATON’s leading position in the European and South American markets with Navistar’s presence in North America would create a leader with global reach and complementary capabilities.  The transaction would also provide substantial value to Navistar stockholders through an immediate and certain cash premium.

TRATON Chief Executive Officer Andreas Renschler said: “Over the past three years, we have benefitted from a highly collaborative and productive strategic alliance with Navistar.  As the market continues to evolve, we believe there are compelling strategic and financial benefits to a full combination of TRATON and Navistar.

“The proposed transaction would create a leader in commercial vehicles with global scale and a strong portfolio of leading brands and cutting-edge products, technologies and services while delivering immediate and substantial value to Navistar stockholders.”

The proposal, which TRATON expects to be evaluated by the independent directors of Navistar, is subject to certain customary due diligence.  Any transaction would be subject to approval by the boards of TRATON and Volkswagen AG and the Board of Directors of Navistar and its stockholders as well as negotiation of a definitive merger agreement and stockholder support agreements with certain major stockholders of Navistar.  TRATON expects that the proposed transaction could be closed by the end of 2020.

As a significant stockholder of Navistar, TRATON is committed to seeing the proposal completed and would not, in its capacity as a stockholder, support an alternative transaction.

The future for Navistar International as a combined force, together with TRATON Group’s VW Truck and Bus, Scania and MAN seeks to go head to head with Daimler Truck and Bus’s Mercedes-Benz and Freightliner, PACCAR’s Kenworth, DAF and Peterbilt, and just about anyone else left in the marketplace.

The question is open for discussion for the future distribution of International products in Australia through its existing ties with IVECO or alternatively, the potential for adding a conventional truck brand to the range of cabovers on display at Scania dealerships. One thing is certain, the combination of Andreas Renschler and Troy Clarke is not going to accept a second-best position in the future.

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