In the eyes of some industry experts, the scuttling by Navistar of its deal to purchase the medium-duty truck operations of General Motors is no big deal. In fact, it's not much of a surprise, given the current economic environment.
“It's really not a tremendous surprise that this deal fell through,” explains Eric Starks, president of FTR Associates, a transportation-industry consulting firm. “It took too long for the deal to get finalized, for starters. Then there's the market situation to consider: there's a lot of medium-duty equipment sitting on the lot right now.”
“Market conditions” are what Navistar blamed as the reason for the deal going sour, too.
“Due to significant marketplace and economic changes, GM and Navistar have decided not to renew the memorandum of understanding to purchase GM's medium-duty truck business, which has expired,” Navistar said in a press release. “GM will continue to run the medium-duty business as it has in the past, including providing sales, service and marketing support to GM dealers for its medium-duty trucks. GM will continue to review strategic options for the business, including continued discussions with Navistar.”
That last sentence is the critical point, however, stresses Starks: GM still plans to sell off its medium-duty operation, and Navistar may indeed still buy it.
“GM just wants to get out of that business so it can focus cash and capital on car production. It's a cash flow issue — GM is still anxious to sell,” he explains. “Obviously, Navistar is the best fit for buying GM's medium-duty business, but the failure of the sale does not make GM's medium-duty operations less attractive. From a name-brand perspective, GM is still a player — that name recognition is still very valuable.”
For those reasons, Starks believes GM will sell off its medium-duty business within the next five years. In the short term, however, the company must resolve that it's a medium-duty player and stay focused.
“In general, there are not too many players in the medium-duty segment. The real issue is that the medium-duty market is so fragmented,” Starks noted. “You've got school buses, utility trucks, recreational vehicles, pickup and delivery, construction trucks — they are all in there, making medium-duty a very complex and custom-driven marketplace.”