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Navistar's VW Deal Is Not an Express Lane to an Acquisition

Volkswagen AG has been seen as a potential buyer of Navistar International Corp. (NAV) for nearly a decade. On Tuesday the Germans finally decided to take a test drive.

The two companies announced before markets opened that Volkswagen Trucks & Bus would take a 16.6% stake in Navistar and appoint two directors to the U.S. company's board as part of a broader strategic alliance. Lisle, Ill.-based Navistar and Volkswagen said they had entered into a procurement joint venture and will engage in technology sharing focused on powertrain design.

Navistar said that the arrangement will save it $500 million in expenses over the first five years, and $200 million annually once fully established. But the bigger question for investors is how cozy the two companies might eventually become.

The deal is the latest milestone in Navistar's recovery from a disastrous $700 million bet last decade on a failed new engine technology technology designed to meet stricter emissions standards but which instead led that led to a slump in sales and uptick in warranty claims, putting Navistar in 2012 at risk of a potential bankruptcy. The company under CEO Troy Clarke has battled back, narrowing losses in 2015 and driving towards...