Volkswagen Buys Stake In Navistar International; Complete Merger Possible

Volkswagen Truck and Bus and Navistar International recently agreed to terms on a wide-reaching technology and purchasing agreement. This deal, which was born out of necessity to meet strict emissions standards, saw VW spend $256 million to take a 16.6 percent ownership stake in the truck manufacturer. 

U.S. regulators  announced new environmental standards last month, designed to cut greenhouse gas emissions from medium and heavy-duty trucks by up to 25 percent by 2027. As with many other manufacturers, this placed added pressure on Lisle, Illinois-based Navistar to seek a technology partner and lessen their financial burden. 

This new alliance should help both companies to cut costs, as Volkswagen will now have a stronger foothold in the lucrative North American market and Navistar will now have a new engine provider. They have been searching for an engine development partner since 2010 when their own U.S. diesel engines failed to meet federal regulations.

This deal might also allow VW to completely spin off their truck arm, which has been surprisingly profitable in spite of the emissions-cheating scandal that virtually killed sales of their diesel-powered cars in the United States.

Volkswagen Truck & Bus will hold Navistar shares for a minimum of three years while top-level executives from both companies will align their product development and procurement processes. Pooling  procurement will create economies of scale from Volkswagen Truck & Bus's three major truck brands, Scania, MAN and Volkswagen Caminhões e Ônibus, in addition to Navistar's International and IC Bus brands.

Once these procurement and development processes are aligned, VW could then raise its stake in Navistar at a later date if it chose to do so. Volkswagen Trucks CEO Andreas Renschler said that "all options are open" as both brands work towards building a "global truck champion," meaning that a full merger of the two brands would be possible down the road.