Diesel engines, light trucks and possible heavy-duty

US truck and engine manufacturer Navistar Inc founded a new engine joint venture with Jianghuai Automobile Co Ltd last week, which will initially make diesel engines for light-duty trucks.

The two companies finally sealed the deal last Thursday after first reaching an agreement on the program in 2010. The partnership was approved by government regulators in June this year.

Funded by a total investment of 1.8 billion yuan, the joint venture will build a new 150,000-unit diesel engine plant in Hefei, Anhui province, where mass production is set to formally start in January 2014, according to Navistar.

JAC's 2.8-liter diesel engine and Navistar's Maxxforce range of larger diesels will be produced at the joint venture and used in JAC's light trucks to be sold domestically as well as exported to Mexico and Brazil at the outset, it said.

Following Beiqi Foton and Dongfeng, JAC was the third-biggest commercial vehicle maker in China by sales in the first half of this year, when it sold nearly 150,000 vehicles.

Eyeing bigger trucks

The majority of its sales are light trucks because the company has stalled in the large truck market, which is exactly the expertise of Navistar, the leading heavy-duty truck and diesel engine maker in North America.

"The joint venture is the first step in our relationship with JAC that we hope to grow far beyond that," said Joe Werth, general manager of the joint venture. "It also opens up the possibility of medium and heavy-duty truck alliance between Navistar and JAC."

Rudi von Meister, president of Navistar's China operations, confirmed that heavy-duty truck production with JAC is under discussion and the company will apply for government approval.

The engine partnership plans to make large-displacement engines and integrate its powertrains into trucks that will be made by the joint venture between Navistar and JAC, he said.

"We are here in the right place at right time with the right partner," said Meister, noting that the company will offer cost-effective products that fit the market, as most commercial vehicle buyers are reluctant to pay a brand premium. The old China hand has work experience in the country stretching back to the 1980s and speaks good Chinese.

"The market here is asking for a (China-made, cost-effective) Seagull wrist watch, but the average foreign player brings in a Rolex," said Meister. "Every buyer admires the Rolex, but then they go back and buy the Seagull because the Seagull serves the purpose."

"We realize that for us to succeed, we have to do things differently," he said. "And that's why we are blessed to have JAC as our partner, because they are not only very effective competitors in the market, they know how to do a lot with a little and do it very successfully."

Cooling market

But latecomer Navistar is encountering a slowing economy and a cooling commercial vehicle market in China.

According to market data, domestic truck sales totaled 1.38 million in the first half, a nearly 7 percent decrease from a year ago. Heavy-duty truck numbers have the steepest decline, some 31.6 percent, while light-duty truck sales fell by 6.5 percent.

Analysts said that the stagnant heavy-duty truck market is mainly due to slowing economic growth, cooling investment and the restrained property development sector.

General manager of the Navistar-JAC joint venture Werth noted that the company has analyzed various market scenarios and is convinced that the partnership will have positive returns despite the current downturn.

Other foreign makers have also moved into the market despite the slowdown.

Beijing-based Beiqi Foton and European commercial vehicle maker Daimler formed a truck joint venture in February and invested 1 billion yuan in a diesel engine plant to supply to its trucks.

Ford Motor Co's Chinese partner Jiangling Motors Corp recently bought Taiyuan Chang'an Heavy Truck Co to expand into the heavy-duty truck market. Ford has a 30 percent stake in Jiangling.

hantianyang@chinadaily.com.cn