Navistar International Corp said that its tentative agreement with General Motors to acquire GM's medium-truck operation has been terminated. According to Navistar, the downturn in the US economy and drop in sales of commercial vehicles resulted in the breakdown. GM's medium-duty sales fell 20 per cent through July compared with the first seven months of 2007.

Post break-up, GM will continue operating and owning its medium-duty truck business, which is based in Flint, Michigan.

The original memorandum of understanding signed between the two companies in December 2007 has expired, and both parties decided not to renew the provisional accord.

While GM is the no 1 light-truck maker in the US, it wanted to load off the medium-duty truck market because the business requires more capital and gives relatively low margin compared to light-duty truck sales.

The Flint assembly, which produces medium-duty vehicles like tow trucks and buses caters to the business interests of Navistar, the leading producer of such vehicles.

Under the agreement, Navistar would produce 30,000 to 40,000 medium-duty trucks and sell them under GM's Chevrolet and GMC brand names at an existing Navistar facility.

The deal would have helped GM raise capital and help it focus on building and selling passenger cars and pickup trucks, while Navistar expand its leadership in the segment.

Navistar is a leading producer of the heavy-duty "Class 8" trucks that haul freight across the country. The company is also a leading producer medium-duty Class 5, 6 and 7 commercial trucks, which are used in workhorse chores such as garbage hauling and towing cars.

GM makes Class 5 and 6 medium-duty trucks, and also produces a small-medium vehicle known as Class 4 trucks, which are essentially super-heavy-duty pickups.