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VW, Navistar: What’s the Deal?

Posted: September 9, 2016 by Rolf Lockwood

September 7, 2016 Vol. 13 No. 18

Well, it finally happened. Rumored for many months, if not years, and now a fait accompli, Volkswagen Truck & Bus has bought a piece of Navistar International. While the gossip mill mostly envisioned an outright purchase by the German giant, yesterday’s announcement described a less dramatic deal: VW is buying a 16.6% stake in the Illinois company. It will pay US$15.76 per share or a 25% premium over Navistar’s 90-day volume-weighted average price as of Aug. 31, or 12% over Navistar’s closing price on Sept. 2. Navistar will receive US$256 million from the equity investment to be used for general corporate purposes.

Navistar shares had risen 40% on the news by the end of trading yesterday, Sept. 6, a gain not seen in over three decades.

The two companies are calling it a “wide ranging strategic alliance” that will initially focus on providing powertrains for Navistar trucks starting in 2019. Indeed, VW Trucks chief Andreas Renschler speaks of economies of scale, citing the extreme costs involved in developing engines to meet future emissions regulations. He doesn’t, by the way, rule out a full-bore merger of the two companies at some point in the near future if the new partnership goes well.

For Volkswagen, the move is “a major milestone on our way to creating a global champion,” said Renschler in a conference call Tuesday morning, alongside Navistar CEO Troy Clarke. He noted that the alliance “allows us access to the North American market and creates synergies on the technology and on the human side.”

He also pointed out that the alliance offers a complementary geographic footprint, with VW being strong in Europe and South America, and Navistar strong in North America and Latin America, especially Brazil.

When asked about potential plans for a further investment in Navistar, Renschler said, “We believe with the alliance we are forming at the moment … is the right thing … It’s a starting point. Our companies can get to know each other … and I think for us it’s a perfect entry and in a couple of years we can see…. All our options are open.”

The timing was right, he added, because VW is currently starting work on its new global powertrain platform and can get Navistar involved in early stages.

SO WHAT IS VOLKSWAGEN in the truck world? Some might be surprised to know that it makes medium-duty and light-heavy trucks, sold mostly outside Europe, and it’s especially strong in Brazil. But it also owns Sweden’s Scania and Germany’s MAN, and all told it produces trucks at 25 sites in 17 countries.

Both MAN and Scania produce their own engines. Scania also makes transmissions, its Opticruise automated manual being well regarded.

The Swedish outfit’s 16.4-liter V8, making as much as 730 hp, was available two years before the date called for by the Euro VI emissions standard mandate. Launched in 2000 as a completely new design, it shares design and componentry with other Scania engines, in 9-, 12-, and 13-liter variants.

MAN also makes engines, and in fact Navistar’s own 13-liter diesel is the result of technology sharing with the German firm. That long-established relationship paved the way in some respects for the new alliance. In fact, that existing link will likely be at the core of the new partnership. Scania’s involvement will be minimal, according to one expert commentator.

Navistar CEO Clarke refused to speculate on that in the conference call, saying nothing will change in the short term. But come 2019 when the VW/Navistar technology alliance should be in full swing, who knows where Cummins will fit in?

“There is a well-established trend in the industry, globally, along vertical integration,” he said. But he also stressed that Navistar’s relationship with Cummins remains, referring to the engines as an “outstanding product” that continues to gain traction with customers.

“We anticipate we will continue to offer Cummins products for a period of time,” Clarke continued. “We’ve got a great partnership with them as well. We’re not speculating or making announcements on that today.”

The promise of sharing technology with Volkswagen extends beyond powertrains alone. The new partnership is expected to collaborate on “all aspects of commercial vehicle development,” according to a statement announcing the deal. That includes driver-assistance systems, connected vehicle tools, platooning and autonomous technologies, electric drive systems, and cab and chassis components.

“All trucks will be connected. All trucks will kind of know where they’re at. All trucks will be talking back to somebody who can monitor the costs of them, and their maintenance needs,” Clarke said, calling telematics, connectivity, and advanced safety systems as the next areas of growth.

By year five of the deal, the companies expect to save about US$200 million (C$257 million) per year thanks to joint procurement activities and engineering-related savings.

VW’S INVESTMENT IN NAVISTAR has been on the cards since early 2015 when Andreas Renschler joined the company to lead its truck division after nearly 10 years as head of Daimler Commercial Vehicles. The company then had majority stakes in both MAN and Scania (now almost complete ownership in each case) and was looking to integrate its truck businesses in order to better compete in global markets against rivals Volvo and Daimler. There was much speculation then that entering the North American market was a necessary next step, and Renschler was clearly the man to lead the way.

Some commentators subsequently speculated that Volkswagen’s very expensive passenger-car diesel emissions scandal would leave the cupboard bare in terms of possible North American investment. But Renschler claimed that VW’s truck division became a separate entity last year and was thus distanced from the car side’s substantial financial burden.

Industry scuttlebutt suggests that VW is actually scrounging funds from any source to pay its pass-car emissions bills, which amount to many billions of big American dollars. So the relatively small initial investment in Navistar may reflect that.

WITHIN WESTERN EUROPE, Daimler has a leading market share of about 24%, but the combination of MAN (16%) and Scania (10%) amounts to more, in the 26% range. PACCAR-owned DAF holds some 16%, while the Volvo/Renault combo sits around 21%. Iveco’s chunk is about 8%.

The European truck market is presently a little larger than in North America.

Globally, Daimler also leads, followed by China’s Dongfeng and then Volvo (which  holds a substantial share in the Chinese manufacturer). Volkswagen slots into fourth place.

On our shores, Daimler Trucks North America has a whopping 42% class-8 market share, Navistar having dipped below 15%. The latter company has seen rising numbers in the medium-duty segment, however.

Navistar and Volkswagen make a combined 260,000 trucks and buses per year.

FREIGHTLINER’S NEW CASCADIA has been relegated to second billing in this issue of the newsletter but that’s only because of the drama offered by the VW/Navistar alliance. Certainly not because it’s a run-of-the-mill introduction. Quite the reverse.

You will have seen earlier coverage of the 2018 Cascadia introduction last week in Colorado, so I won’t dive into the detail here. Have a look at my colleague John G. Smith’s story on our website here, which includes a brief video by my buddy Jim Park. I do have some observations, not surprisingly.

One, it’s a great looking Freightliner, a clear deviation from the current Cascadia while retaining the basic shape. The first thing that struck me was the clean and elegant front end, meaning the grille and the fenders. It reminded me of the semi-autonomous Freightliner Inspiration truck showed with much fanfare at its Las Vegas launch last year. Turns out I was on the money.

I learned that the new Cascadia’s design, the result of a project begun more than four years ago, actually came first. And it was the Inspiration borrowing design cues, not the other way around. The Inspiration was inspired!

In fact, given the extreme connectivity of the new truck — meaning scads of electro-gizmology on board — I’d guess that it could be an Inspiration equivalent with the simple addition of an electric motor to run the steering wheel and not much else. Right, ‘simple’.

Still with that front end, I noticed the wildly low front bumper on all the trucks at the event, every one of them the property of a big fleet, our own Bison Transport included. Impossibly low, I thought, then learning that the lower lip is an option — and suitable only for highway tractors. I’m promised that it’s pretty much unbreakable.

The actual front bumper is a marvel of simplicity, by the way, removable in no time.

MY SECOND OBSERVATION was actually a question, namely how new is the ‘new’ Cascadia. How much of the current truck of the same name — we’re discouraged from calling it the ‘old’ Cascadia, not incidentally — still exists?

Not all that much, as it turns out. The basic cab structure, most of the running gear underneath it all, and relatively little else.

The frame is new, now splayed at the front which allows dramatically better engine access and lowers the engine to allow for better packaging and thus improved aerodynamics and stability.

A new front suspension is said to provide a smoother ride and improved roll stiffness, and the steering gear is now located further forward to help improve steering precision.

The interior is all new, and a fine job they did with it — lots of storage nooks and crannies, three cupholders mounted low enough to allow access to various dash controls that have been obstructed in the past (not just in Freightliners), and a microwave compartment that can fit ordinary appliances available off the shelf at Canadian Tire or Walmart or wherever you buy such things. There’s much more to describe, but suffice to say it’s a very driver-friendly environment.

THIRD, FUEL EFFICIENCY is off the charts. In his opening remarks, DTNA CEO Martin Daum called the fuel-efficiency gains “mind-boggling”. He said the design target was 5% over the current Cascadia Evolution model, but the design team’s efforts produced a truck that bests the Evolution by a full 8%. Daum said the new Cascadia in full AeroX trim is 19% more fuel-efficient than the current base-model Cascadia.

The results were monitored and verified by a third party during a fuel-efficiency comparison between a 2016 Cascadia Evolution and the 2018 Cascadia on a 2400-mile route from Detroit to Portland, Ore., with a 78,000-lb gross combination weight.

The trucks were similarly configured, the older truck having Detroit drive axles with a 2.41:1 ratio and the full Evolution aero package. The new truck had a Detroit drive axle but with Axle Lubrication Management and a 2.16:1 ratio, plus the new AeroX aero package.

Daum says customers who want the full efficiency powertrain and AeroX package can expect to pay about US$15,000 over the base model.

MY FOURTH OBSERVATION has to do with all the electronic gizmology, and in fact this is a truly connected truck, which may be the biggest single angle to the 2018 Cascadia.

“A connected vehicle is the gateway to accessing and understanding the full performance potential of the vehicle and improving daily operations,” said Richard Howard, senior vice president of sales and marketing at DTNA. “The ability to capture, transmit and analyze data directly from vehicles empowers our customers and can help them dramatically improve efficiency and have an immediate impact on the bottom line.”

The proprietary connectivity platform introduced by Detroit is exclusively for the new Cascadia. It allows delivery of current Detroit Connect features like the Virtual Technician remote diagnostic service, as well as new features designed to provide deeper insights on fuel efficiency and safety performance.

Here we have, very significantly, the introduction of Detroit Connect Remote Updates which enables over-the-air engine parameter programming and Detroit-initiated remote engine/powertrain firmware updates. Not available ’til the second half of 2017.

Also available as an option will be Detroit Connect Analytics offering users on-demand, automated fuel-efficiency and safety analysis and reports featuring insights from Detroit and DTNA engineers.

The connectivity platform will be available at the start of production in January 2017.

The new Cascadia is expected to be in full production by March. The current version of the truck will remain in production for another two years.

THIS NEWSLETTER IS PUBLISHED every two weeks. For the most part it’s a heads-up notice about what’s going on with trucking technology. I also write here about interesting products that may not have had the ‘air play’ they deserved within the last few months, and maybe about issues that warrant attention in my occasionally humble opinion.

I should remind you that, with the odd exception, I don’t endorse any of the products I write about in this e-newsletter, nor do I have the resources to test them except on rare occasions. What you’re getting is reasonably well educated opinion based on more than 37 years in trucking.

If you have comments of whatever sort about The Lockwood Report, or maybe you’ve tried a gizmo I should know about, please contact me at rolf@newcom.ca

 

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