Caterpillar, Navistar to jointly build, sell trucks

By James Kelleher

CHICAGO (Reuters) - Caterpillar Inc (CAT.N) and Navistar International Corp NAVZ.PK are forming an alliance to build and sell a variety of trucks worldwide, the companies said on Thursday.

The deal quashes speculation that Caterpillar, a major manufacturer of diesel engines and the world's largest maker of construction and mining equipment, would exit the on-highway vehicle business altogether. It also provides an additional signal that the North American truck-making business is consolidating along the lines of the business in Europe.

Caterpillar said one of the trucks produced by the strategic alliance -- a heavy-duty truck for mining and highway construction customers -- would be on the road by 2010.

Caterpillar, based in Peoria, Illinois, also said it would stop supplying engines to other on-highway truckmakers, starting with the introduction of engines designed to comply with 2010 U.S. clean-air rules. It said it would begin developing engines in partnership with Navistar.

Uncertainty has surrounded Caterpillar's on-highway diesel engine business for more than a year, after problems associated with powerplants designed to meet tough 2007 U.S. clean-air rules allowed Caterpillar rival Cummins Inc (CMI.N) to gain a big share of the North American market.

That threw a big question mark over Caterpillar's engine business at a time when the North American truck-making industry, which traditionally bought its engines from independent suppliers like Caterpillar and Cummins, was rapidly changing as more manufacturers, like Paccar Inc (PCAR.O), moved engine-making in-house.

The Caterpillar-Navistar partnership comes at a time when the North American big-rig truck market is in a downturn, due in part soaring fuel prices, which have prompted sporadic protests by independent truckers.

Adding pressure is the slowdown in the U.S. economy. A surge in truck purchases in 2006, as long-haulers rushed to buy ahead of the implementation of the 2007 clean-air rules, also means there are now too many trucks chasing too little freight.