As the fallout continues over the June 12 announcement by Caterpillar Inc. that it was pulling out of the heavy-duty engine market, several analysts contacted by Fleet Owner indicated the move could be a positive one for both Cat and Navistar International Corp., with whom Caterpillar will form a strategic alliance.
“[The moves] give Caterpillar the ability to refocus efforts into off-highway and international markets, which makes sense because it frees capital and talent,” Martin Labbe, president of Martin Labbe Associates, told Fleet Owner. “Given the current exchange rate and the rest of the world needing infrastructure, Cat is in an excellent position in that market.”
Caterpillar and Navistar have signed a memorandum of understanding (MOU) to cooperate on a number of engine platforms and pursue global on-highway truck business opportunities, the companies announced. The two firms plan to cooperate on development of midrange engines for diesel applications that support each company's decision not to utilize urea-based selective catalytic reduction (SCR) technology for such powerplants.
While the partners made it clear that Caterpillar would be exiting the on-highway, heavy-duty engine business in 2010, plans for their two medium-duty lines appear to still be under discussion. Caterpillar may remain an independent supplier of engines, or it may become exclusive to Navistar trucks, but in either case, it will share technology and resources to develop future MD platforms jointly.
A close reading of data compiled by Wardsauto.com on factory installations of Class 8 engines for the first four months of 2008 sheds light on the deal, pointing to a heavy-duty diesel market supporting one independent engine maker, not two, as proprietary highway diesels gain market share. Analysis of the data reveals that for the first four months of this year, Caterpillar held the No. 4 position for Class 8 engines in North America with 12.5% market share. Cummins had the top spot (40.6%) while the No. 2 (Detroit Diesel and Mercedes Benz at 24.3% combined share) and No. 3 (Volvo and Mack at 13.2% combined) positions were held by suppliers of proprietary engines as was the No. 5 (Navistar at 9.3%) slot.
And of the total 8,321 Cat engines installed, 5,563 — almost 67% — were placed in Kenworth and Peterbilt trucks. Given that Paccar, the parent of those OEMs, will roll out its own proprietary engine line in time for 2010, it's safe to bet Cat's share would have further declined.
Through the resulting alliance, Caterpillar said it plans on introducing a North American Cat-branded, heavy-duty truck in 2010 designed for severe-service applications, such as road construction, large infrastructure projects and oil and petroleum development. “This new truck — targeted for 2010 — will incorporate the legendary quality of Caterpillar's construction and mining machines,” said Douglas R. Oberhelman, Caterpillar group president.
“The combination of Navistar's truck design, development and manufacturing expertise and Caterpillar's unparalleled worldwide distribution creates a significant advantage for global customers through the ability to offer the right vehicle for the right application through more than 4,700 points of distribution around the world,” said Dee Kapur, president, Navistar Truck Group.
“The way trucks are built is changing,” consultant Darry W. Stuart, president of DWS Fleet Management, told Fleet Owner. “We're seeing a strong return to vertical integration now. You pick a truck, and the engine comes with it. Mack had this philosophy decades ago.”
Navistar said that the agreement would have no impact on its relationship with MAN to develop MaxxForce Big Bore diesels.
