• Dec 20, 2007
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.


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  • 25 Comments
      • 7 Years Ago
      xxxxxx---Dude is this the first time Wagoner screwed up? Im i crazy or under his controll GM saw some of its biggest troubles?

        • 7 Years Ago
        Also under his control GM is doing very well lately.
        "In April 2005 Wagoner took back personal control of GM's North American car division in light of its poor performance."
        Give him some time and lets see what happens

        • 7 Years Ago
        I don't think Rick had anything to do with the policy of underwriting sub-prime loans.

        Rick has done an amazing job of turning this big ship around...IMO he doesn't get nearly the credit he deserves for the great progress GM has made.
      • 7 Years Ago
      Why not LS....True, but they still hold a significant amount.
        • 7 Years Ago
        GMAC its not the only financial institution that lost money this pas year. (its one of many )
        I dont think they had any other otions besides accepting the fact that they lost.Why do you think the FED keeps lowering the interest rates.?
        IMHO i think Wagoner has done a good job so far on this turnaround stage.
      • 7 Years Ago
      As always most of you see this as a VEHICLE story. But it is not,
      #1 this unit is profitable,
      #2 most of the W, T, and TopKicks do sell for as much as a luxury car, from mid 30’s to over 100Gs.

      #3 GM had to sell this unit to bring in as much cash as possible simply because they are loosing a ton of money from GMAC. It was hit very hard by sub-prime slowdown. This is only the latest price GM pays for Rick Wagoner’s missteps. GM will have huge write-downs associated with sub-prime loans. And money from this sale will make the whole thing look less messy.

      Yes a few CEOs were fired for sub prime mess but for Rick Wagoner this is one misstep too many. It is time that he is fired.
        • 7 Years Ago
        They should hire Mike as CEO.

        Wagoner screwed up on the housing market.

        I have a better idea. lets make Mike the president of America so he can fix the economy and we won't hit recession.
        • 7 Years Ago
        I thought selling GMAC was a pretty smart idea even before the meltdown. I do remember when everyone though Jack Welch was a genius because GE Capital was the biggest money maker at GE.

        But things have changed, along with accounting rules.

        On top of that, GM abused GMAC for several years as just an arm to get people financing (often with uselessly low or zero interest rates) so they could sell more cars. In other words, GMAC probably wrote a lot of bad paper simply because GM was pressuring them to do so to make car sales.

        So you're looking at an asset that would be devalued already due to market conditions and than one that is kind of damaged goods anyway and in the short term will have poor profits due to holding a lot of 0 interest loans. So, if you can find someone who is going to buy the thing off you (for goodwill presumably), then do it. Take the money you get, use it well and it'll still be around later if you want to buy back into the loan-issuing market again when it doesn't suck.
        • 7 Years Ago
        Selling off 78% of the GMAC commercial holding division was one of the few things that Kerkorian managed to accomplish at GM. Part of that agreement was that the debts to GM were paid. GM also sold 51% of GMAC automotive finance to Cerberus. That means GM only controls about 11% of the commercial holdings division. Pretty minor.
        • 7 Years Ago
        GM sold GMAC two years ago, before the meltdown.

        http://www.usatoday.com/money/autos/2006-03-23-gmac-commercial_x.htm
      • 7 Years Ago
      I am surprised GM exists at all these days - they are "evolving" into a paper corporation. Sell off and divulge all in house manufacturing to other companies so GM can make royalty payments off of using GM's name on other company's product. That is the perfect arrangement for these short sighted corporate executives. It is all about "me" and forget about what is good for the company as a whole. What ever happened to ethical business. These execs are paid the big bucks to run these companies - when things go south, they need to be held personally accountable. These guys are ruining the USA's manufacturing base and it is time for this nonsense to stop.
      • 7 Years Ago
      Doesnt make sense to me. GM/Isuzu's Detroit Diesel Partnership seems to be doing very well. The 6.6 Duramax is renowned accross the industry, and the current Powerstroke is still lagging behind it. I dont know the current agreement for production of the topkick and kodiak but this doesnt seem bright.
      • 7 Years Ago
      these last two generations of navistar engines built for ford were not so good. i suppose the 6.4 still has some time to prove me wrong but i'm not hopeful. as someone else suggested, perhaps ford turning up the pressure was partly to blame for these two engines. if navistar is allowed to just do what they do best the partnership might work. if GM starts in like ford was doing it'll be nothing but trouble.
      perhaps i'm not aware of ford's prowess in the medium duty european diesel market. i thought all they had was duratorq (sp?) engines in passenger cars.
        • 7 Years Ago
        navistar along with cat actually designed the heui injection system. navistar was allowed to release it first so if it was a turd it didn't suck cat down with it. heui turned out ok, actually. like i said, the 6.4L doesn't have enough time yet to make a judgement.
        i was trying to be positive about the GM sale. i think it's the wrong move just like selling allison transmissions. i always thought GM did a fair to good job on their meduim duty stuff. one false move and ford F450-F750 will eat them alive in terms of new sales.
        • 7 Years Ago
        No Navistar sucks period. We have a fleet of something like 25 International dumpers....ranging from 00-07. All the 00-02s keep blowing fuel pumps, spraying oil, eating injectors, etc. The 03-07s constantly have brake problems and on one occasion (since I started back in May) had an engine replaced.

        Simple: Navistar and International blow. If you need a truck, buy something with a CAT engine in it. I suggested that to my boss a couple weeks ago.

        As far as the 6.4L: We have four brand new 08 F-550 dumpers. While they don't have many miles on them (mine has 700 miles on it), they run well. I actually plowed and salted with it on Sunday and it ran like a champ. Good trucks....
      • 7 Years Ago
      Ok- first you have the fault in the 6.4l trucks wrong- instead of excessive temps being the problem, leaky injectors ARE. Leaky injectors are causing uncontrolled fuel to get to the particulate trap, which causes it to go into an uncontrollable regen of sorts. Faulty injectors were replaced.
      Both engines basically had injector problems, but it was Ford's refusal to go to Common rail on the 6L that lead to many of the complications there.
      Tyo- GM's Duramax partnership with Isuzu ends in 2010 (IIRC) at which point GM will take over the Duramax brand and manufacturing. GM's share of the class 4-6 market is small, so it's tough to make money in that sector. What I would guess International is looking to expand their offerings downward a bit, and pick up manufacturing in the process.
        • 7 Years Ago
        The Ford motors are not the only navistar engines with injector problems. My companys 2004 medium duty truck with the DT466 has been in the shop 3 times to replace injectors. From what I understand it is happens often. All of our older and previous International trucks never had injector problems. We switched to GMC due to the poor service from our local International dealer. Our 2005 GMC has the Cat motor. Thumbs up so far. If they merge, I am not sure what our next truck will be.
      • 7 Years Ago
      Navistar is going to produce trucks badged as Chevrolet / GMC.

      That doesnt seem kosher.
      • 7 Years Ago
      The rumor was, they wanted to shift production and incorporate a bigger seller at the Flint Truck Plant.

      But that was just a rumor, I have no idea if it's true.
      • 7 Years Ago
      Any word on where Ford will be sourcing their next oil-burners from?
        • 7 Years Ago
        Rumor is it will be in house, using expertise from their existing Euro diesel technology.
      • 7 Years Ago
      Well almost 3 years since, also that is hardly an exuse. He is a CEO, he should have hired people who are qualified to run North American division.

      I am personally shoked by the number of people on this blog who are ready to exuse any mistacke by Wagoner. How many more will he make before GM will go bust?
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