Caterpillar ties up with Navistar to jointly manufacture and sell trucks

With the North American truck market slumping due to soaring fuel costs and decreased demand, Peoria-based heavy equipment manufacturer Caterpillar and Warrenville-based truckmaker Navistar International yesterday announced a partnership to build and sell trucks globally, in a move reminiscent of similar consolidation seen in Europe recently.

This deal also quashes speculation that that Caterpillar would completely exit the on-highway truck engine business, a business that has thrown up more challenges than profits in recent times. However, Caterpillar will stop supplying engines to other North American manufacturers of these vehicles, starting with the introduction of engines designed to comply with 2010 US clean-air rules.

Such a move is expected to benefit Caterpillar's rival diesel engine maker, Cummins Inc., who may garner a larger share of the market. On this expectation, Cummins shares gained much more yesterday than either Caterpillar or Navistar.

Under the partnership arrangement, Navistar will begin producing a Caterpillar-branded heavy truck designed for "severe service" applications, such as road construction, which will be sold in the US through Caterpillar's network of dealers.

Navistar and Caterpillar will also build and sell commercial medium- and heavy-duty trucks in some countries outside North America, a move that will help Navistar expand its overseas presence.

For Navistar, the alliance will generate new production volume that promises to create additional manufacturing efficiencies and lower costs per unit. That's in line with the truck company's strategy of leveraging its own assets through production partnerships.