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Navistar-JAC Gets Govt. Approval

Zacks Equity Research

Navistar International Corporation (NAV) and China-based truck maker Anhui Jianghuai Automobile Co. Ltd. (“JAC”) are happy, as they have received the green light from China’s National Development and Reform Commission (:NDRC) to move ahead with their commercial engine joint venture after waiting for nearly two long years.

In September 2010, Navistar entered the joint-venture agreement with JAC to develop, build and market advanced diesel commercial engines in China. Since then, the two companies have been preparing for a smooth launch.

Navistar has established a central office in Shanghai as well as satellite offices in Beijing and Hefei in order to develop insight and understanding of the Chinese market. The company has also started construction on a machining and assembly facility, research and development center, and administrative offices in Hefei to support the new venture.

The joint venture will cater to the Chinese commercial truck market and will help JAC gain access to Navistar’s Euro IV and Euro V compliant technology. The products slated to be launched under the joint venture include Navistar’s MaxxForce 3.2, 4.8, 7.2 and JAC's 2.8 4DA1 liter engines.

The joint venture also aims to develop light-, medium- and heavy-duty commercial trucks. The partners plan to submit their plan for commercial truck joint venture to the government for formal approval later this fall.

Navistar, a Zacks #5 Rank (Strong Sell) stock, reported a loss of $137 million or $1.99 per share (excluding special items) in the second quarter of 2012 ended April 30, 2012, in sharp contrast to a profit of $102 million or $1.30 per share in the corresponding quarter of last year and the Zacks Consensus Estimate of a profit of 67 cents per share.

Revenues declined 2.9% to $3.3 billion, missing the Zacks Consensus Estimate of $3.6 billion. The decline in revenues was attributable to a decrease in sales in the engine and part segments, which were partially offset by strong sales in the truck segment.

Navistar International Corporation is based in Warrenville, Illinois. It manufactures and sells commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans. It also provides service parts for various trucks and trailer. The company is one of the largest truck producers after Daimler AG (DDAIF) and PACCAR Inc. (PCAR).

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