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Navistar/GM Deal Stalls Out

August 20, 2008

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"Significant marketplace and economic changes" have caused General Motors and Navistar International to drop the deal in which Navistar would have bought GM's medium-duty truck business, the two builders said in separate announcements on Aug. 20.

A memorandum of understanding on the deal was announced in December, but it has expired and the two companies decided not to renew it.

Sales of commercial trucks have dropped seriously in the last two years, darkening prospects for a profitable operation of the business by Navistar and probably lowering the amount of money GM might have gotten for its range of midrange trucks. In May, GM executives said they hoped to close the deal by the end of June, but another source said the deal's many facets and details made it the most legally complex GM had ever attempted.

If the sale by GM had gone through, Navistar would have acquired rights to build and distribute Chevrolet Kodiak and GMC TopKick Class 4-7 and Baby 8 conventionals and T-series low-cabover models through existing GM dealers. Production would have moved from GM's plant in Flint, Mich., to an unnamed Navistar plant, possibly its midrange factory in Springfield, Ohio. None of that will happen, at least for now.

GM said it would continue exploring strategic possibilities in its quest to divest itself on non-core activities and concentrate on automobiles and light trucks. One is continuation of talks with Navistar. Last summer GM sold its Allison Transmission operations to an investor group, and in the mid 1990s it sold its heavy truck business to Volvo Trucks. In the latter deal, Class 8 Chevies and GMCs disappeared.

The proposed deal might also have exacerbated the souring relations between Navistar and Ford Motor, which began deteriorating because of a dispute over warranty claims on V-8 diesels Navistar built for Ford's SuperDuty pickups. The deal with GM might also have jeopardized the Blue Diamond joint venture under which Navistar assembles Ford's F-series Class 6 and 7 conventionals and builds a Ford- and International-badged Class 3 and 4 low-cabover truck, though Navistar said Blue Diamond would not be affected.

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