Cat And Navistar To Focus On Global Truck Business And Cooperate On Engine Technologies

Caterpillar Inc. (NYSE: CAT) and Navistar International Corporation (Other OTC: NAVZ) have signed a Memorandum of Understanding (MOU) 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.

"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."

Through this alliance, Caterpillar plans 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. Concurrent with this new strategic direction, Caterpillar has determined independently that it will not supply EPA 2010 compliant engines to truck and other on-highway original equipment manufacturers (OEMs).

"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. "This new truck-targeted for 2010-will incorporate the legendary quality of Caterpillar's construction and mining machines and provide construction customers a one-stop solution. 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."
The companies have commissioned teams to focus on the truck and engine opportunities. The initiatives contemplated by the MOU are subject to completion of due diligence, execution of definitive agreements and regulatory approvals.

Global Truck Collaboration
The companies intend to work together to develop, manufacture and distribute commercial trucks in select regions outside of North America. The product offering would include a full line of medium and heavy-duty trucks in both conventional and cab over designs.

"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, President, Navistar Truck Group. "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."

"This is a natural extension of Caterpillar's more than 40 years serving on-highway customers with proven, award winning technology-combined with unsurpassed global distribution and product support," said George Taylor, Director of Caterpillar

On-Highway Engines.
In addition to the United States and Canada, Navistar has a substantial distribution network in Mexico and Latin America. 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 Technology
Under the alliance, Caterpillar and Navistar plan to cooperate on engine development, incorporating "best in class" technologies from both companies. Caterpillar and Navistar intend to work together on development of mid-range engines for diesel 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, President, Navistar Engine Group.

"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."

Remanufacturing Growth and Additional Synergies
Through the alliance, 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.

Caterpillar and Navistar plan to explore opportunities to leverage their scale. Combining raw material and other commodity purchases is just one example of how the two companies can work together to reduce costs.

About Caterpillar
For more than 80 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2007 sales and revenues of $44.958 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at CAT.com.

About Navistar
Navistar International Corporation traces its roots to 1831 and the former McCormick and International Harvester companies. Today Navistar is the largest North American producer of mid-range diesel engines and Class 6-8 commercial trucks and buses. Navistar Defense is a leading producer of advanced armored vehicles and trucks for the U.S. Armed Forces and its allies. Navistar produces International(r) brand commercial trucks, MaxxForce brand diesel engines, IC brand school and commercial buses, and Workhorse brand chassis for motor homes and step vans, and is a private label designer and manufacturer of diesel engines for the pickup truck, van and SUV markets. Navistar is also a provider of truck and diesel engine parts. A wholly owned subsidiary offers financing services. Additional information is available at: Navistar.com.

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Built in Elkhart, IN, the Workhorse Custom Chassis "R-Series" is currently using the Caterpillar C7 engine with ACERT Technology. Click on the link for more information on the Workhorse "R-Series"

Although a little dated (11/07), HERE is an interesting look at the changes taking place in the relationships between diesel engine and truck manufacturers.

Rusty

quote:

Caterpillar has determined independently that it will not supply EPA 2010 compliant engines to truck and other on-highway original equipment manufacturers (OEMs)

Looks like Cummins will be about the only diesel for large MH's, with a few Volvo's in Prevost's as DD is pulling out.

It's interesting that only 10% of Cat's engines are on highway.

quote:

Originally posted by Route 66:

quote:

Caterpillar has determined independently that it will not supply EPA 2010 compliant engines to truck and other on-highway original equipment manufacturers (OEMs)

Looks like Cummins will be about the only diesel for large MH's, with a few Volvo's in Prevost's as DD is pulling out.

It's interesting that only 10% of Cat's engines are on highway.

quote:

Under the alliance, Caterpillar and Navistar plan to cooperate on engine development, incorporating "best in class" technologies from both companies. Caterpillar and Navistar intend to work together on development of mid-range engines for diesel 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, President, Navistar Engine Group.

The CAT press release is a little confusing? They seem to be leaving the door open for a jointly developed Navistar/CAT On-Highway diesels after 2010?

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Originally posted by Explore America:
The CAT press release is a little confusing? They seem to be leaving the door open for a jointly developed Navistar/CAT On-Highway diesels after 2010?

Emissions from post 2010 diesels is allegedly going to be cleaner than the surrounding air into which the exhaust stream is discharged. From speaking to CAT reps, Caterpillar appeared that they were poised to comply with those specifications.

The MOU comes by surprise for me because I always thought that CAT would remain in the on-road business. By 2010 the MOU will allow CAT and Navistar to jointly produce an on-road engine which may be co-branded. I can see it now, a - "NAVCAT"

It's not going to be easy to come to terms with those emission specs and MB and Cummins are not going to be invulnerable or immune to those challenges.

Joining forces and sharing technology appears to be a winning combination and we'll all have to wait and see how all of this is going to play out in the RV business.

The cost for ULSD Emission compliant diesels adds a great deal of cost to the baseline engine. The cost for 2010 diesels is going to be significantly more.

This message has been edited. Last edited by: DriVer,

quote:

I can see it now, a - "NAVCAT"

NAW, that sounds like a brand of boat. I'm betting on "Catinational" ED

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Originally posted by edgray:

quote:

I can see it now, a - "NAVCAT"

NAW, that sounds like a brand of boat. I'm betting on "Catinational" ED

Or just simply CATSTAR.

I just listened to an teleconference and both CAT and Navistar spoke about some exciting things.

By 2010 CAT is pretty much getting out of the OTR engine business. They have seriously done their homework and crunched the numbers on this decision. It is their belief that "no" engine maker is going to be able to sustain an operation on that vertical alone. CAT probably more than any other manufacturer has the widest world-wide distribution network for off-road equipment, and other powered equipment branded CAT equipment.

Navistar is a company that is doing very well and all it needs is additional market outlets in order to go global. Currently Navistar sells primarily in the Canada, USA, Mexico, Central America & South America. Now open up the following markets for International - England, Europe, Middle-East, Russia, China and others globally where CAT has distribution and you can clearly see the vision that Navistar has for its company past 2010.

CAT also wants to compete in the Heavy Duty on-road market which I believe comprises 1.2 million units annually. The MOU will allow International to build CAT branded OTR trucks using a CAT cab and International OTR running gear. The high-line in OTR International trucks would therefore be a CAT which would be sold in International dealerships in the North & South American markets and Navistar would be sold overseas in those markets where CAT already has a dominating presence.

You can see where both of these companies want to be, one complementing the other via the MOU.

One thing that I have not read or heard was continuing C7, C9, C13 & C15 availability for the RV Market past 2010. Although CAT has said that they will continue to support their OTR engines for a lifetime it is apparent in the MOU that they will cease OTR engine production in 2010. This includes the monster CAT C15 in the Newell for example.

International said that although it does not make a 600HP engine they have negotiated with and retain a strategic agreement with Cummins to use its NSX in its largest OTR International branded trucks continuing and past 2010.

This message has been edited. Last edited by: DriVer,