Will VW have an impact on MWM in Brazil?

It will be interesting to see what happens to MWM International in Brazil when Volkswagen AG’s two board members take their place round the table at Navistar International Corporation.

Once they get their feet under the table, will the new board members from Germany (represent heavy trruck operations in Germany and Sweden) begin to make noises about Navistar’s subsidiary in Brazil.

It has to be assumed that Brazil is such an important market that it cannot be ignored, especially being a country which interests both parties.

It is just a year since Diesel Progress magazine reported that Navistar would be idling its truck production In Brazil and closing  one of its diesel production plants.

Reflecting the economic woes at the time in Brazil, Navistar Mercosur, owner of MWM Motores Diesel and International Trucks brands in Brazil, said it planned to idle its truck operations in Canoas city, Rio Grande do Sul state, due to high inventory and low sales. 

Navistar said the economic crisis impacting many sectors of Brazil was also strongly reflected in the truck market. That year, truck sales retreated 45 per cent compared to 2014, which in turn, had already suffered a fall of 11 per cent compared to 2013.

At the same time, Navistar Mercosur said its engine plant in Canoas which assembled the 2.8-litre diesel engines, would cease operations in February 2016.  The engines were manufactured exclusively for General Motors which said it would build its own engines in that range.

The closure left MWM with two engine plants in the Mercosur region; one in São Paulo in Brazil and Jesus Maria, in Córdoba, Argentina. There was also an Engine Creation and Development Centre in São Paulo, responsible for the engine platforms developed in the country.

Now, VW has plans to join the Navistar party with claims that the two companies will develop a ‘new engine platform’. What will be the shape of this ‘new platform’ and where will it be made?

MWM began life in Germany in 1922 as Motoren Werke Manheim which was bought in 1985 by KHD, also of Germany. It then, in 2005, sold the engine business on to Navistar. The company makes engines for vehicular, agricultural, industrial, generating sets and marine applications.

According to its website MWM effectively makes only two engines for vehicles – the 7.2-litre I6 and the 4.8-litre I4.

The I6 appears in variants that develop between 330 bhp (243 kW) and 225 bhp (165 kW). The I4 on the other hand has variants that produce between 190 bhp (139 kW) and 150 bhp (110 kW).

In 2004, the year before Navistar acquired MWM, DaimlerChrysler AG beat out Volkswagen Caminhoes e Onibus as No.1 in heavy-duty trucks sales in Brazil. Mercedes-Benz garnered a 30.5 per cent share of the truck market, followed by VW with 28.8 per cent. In the bus segment, Mercedes held a 50 per cent market share, compared with VW’s 25 per cent. Ford Motor Company’s truck division was in third spot, followed by Scania AB and Volvo Trucks. 

But 12 years on and the market has deteriorated alarmingly. In July this year Daimler Trucks' announced it would cut a further 2,000 jobs in Brazil as political and economic headwinds continued to stifle growth in the commercial vehicle segment causing further permanent worker layoffs.

Daimler Trucks currently employs about 11,500 workers in Brazil and these job cuts will raise the number of jobs Daimler has cut in the country since 2015 to almost 5,000, coming at a cost of about EUR100mn (USD113mn) in severance payments.

Industry observers reckon the landscape for automakers in Brazil will continue to deteriorate in 2016 as labour frustrations reach boiling point leading to production delays and rising costs, thereby affecting overall operating performance. This could lead to businesses being combined to beat off these headwinds.

Volkswagen has shared similar woes. In April this year, Volkswagen Truck & Bus while announcing overll sales of 42,000 trucks and buses in the first quarter of 2016 (a rise of 6 per cent.) it stated: “The developments in South America continued to be a challenge. The situation still remains exceptionally strained in Brazil. Due to the market climate, truck sales there declined by 23 per cent in the first three months.”

Navistar board members will no doubt be seeking advice from VW regarding their own operations in Brazil. Truck sales in the region typically are this year running at between 4,000 and 5,000 a month. Will VW‘s 16 per cent stake in Navistar cause further ripples in South America?