You may recall that Navistar supplies Ford with diesel engines for its Super Duty trucks. You may also recall that the last two diesel engines used in Ford's Super Duty pickups (the current 6.4L Power Stroke and last generation's 6.0L) have had some quality problems. The 6.0L Power Stroke was known for problems stemming from defective fuel injectors, while the newer 6.4L has had one recall related to high exhaust temperatures that could ignite diesel fuel in the particulate filter, causing an impressive light show out the tailpipe. Because of their strained relationship on account of these engines, Ford and Navistar are likely to part ways in the near future.

So what do you do when your biggest client dumps you? You walk across town and strike a deal with its competitor. General Motors announced this morning that it has entered into a "non-binding memorandum of understanding" (read: gentleman's handshake) with International Truck and Engine Corporation to sell its medium-duty truck business to the Navistar owned-and-operated subsidiary. Thus, Navistar will eventually take over building and selling the GMC TopKick and Chevy Kodiak trucks. That's right, while Ironhide will remain a GMC vehicle, he'll no longer be owned by GM.

To be fair, Navistar was undoubtedly forced to produce the last two Power Stroke diesels for Ford in a hurry to meet rising emissions standards, which likely contributed to the problems that both engines have had. Apparently that doesn't bother GM, as we expect the TopKick and Kodiak will likely eschew their Duramax turbodiesels for International diesel engines after the deal is done.

[Source: GM]


PRESS RELEASE:

GM And Navistar Reach Tentative Agreement On Medium Duty Truck Business

NEW YORK/WARRENVILLE, Ill. -- General Motors Corporation (NYSE: GM) and International Truck and Engine Corporation, the principal operating subsidiary of Navistar International Corporation (Other OTC: NAVZ), have entered into a non-binding memorandum of understanding under which Navistar would purchase certain assets, intellectual property and distribution rights for GM's medium-duty truck business, the two companies announced today.

As proposed, Navistar would acquire GM's medium-duty truck business, which includes assets and intellectual property rights to manufacture GMC and Chevrolet brand vehicles in the class 4-8 gross vehicle weight range. It also includes purchase of the related service parts business. Navistar would sell a competitive line of Chevrolet and GMC vehicles and service parts through GM's proprietary dealer network in the United States and Canada.

The agreement is another step in GM's plan to focus on designing, manufacturing and selling cars and light trucks globally. The deal would leverage Navistar's strengths in commercial trucks and engines, and advance its strategy to build scale and reduce costs.

Troy Clarke, president of GM North America, said, "Navistar's expertise in building International® brand commercial trucks and its track record in the medium-duty segment makes them an excellent choice to acquire and continue growing the business. We intend to work closely with Navistar to make this transition seamless to our dealers and customers."

"This is another example of how we're strategically growing our business for trucks, engines and parts, building scale and reducing costs," said Daniel C. Ustian, chairman, president and CEO, Navistar International Corporation. "We are proud to incorporate the GM truck brands into our portfolio, and will utilize the scale to build on the success of both the International and GM product lines and their respective distribution networks."

Navistar would add the GMC® TopKick and Chevrolet® Kodiak truck brands to its growing portfolio of brands, which currently includes International® brand trucks and tractors, IC® brand buses, Workhorse® brand chassis for motor homes and step vans, and MaxxForce® brand engines.

When a deal is definitively concluded, production of the vehicles would move from GM's plant in Flint, Mich., to a Navistar facility to be named. GM would retain ownership of its Flint plant and continue to build other products at the facility.

GM will continue its medium-duty truck relationship with Isuzu to market W-Series trucks through GM's medium-duty dealer network.

The deal is expected to close in 2008 subject to completion of satisfactory due diligence, the negotiation of a definitive purchase agreement, customary regulatory clearance and board approval. Upon closing, transition of the business could take several months to conclude.