UPDATE: VW Acquires 17% of Navistar

Volkswagen Group has agreed to buy 16.6% of commercial truckmaker Navistar International Corp. in a $255 million deal. Reuters first reported the impending alliance on Monday.

VW’s year-old Truck & Bus GmbH unit also will supply truck technology and diesel engines to the Lisle, Ill.-based company. The companies will share purchasing operations, which Navistar estimates will save $500 million over five years.

VW will acquire 16.2 million new shares in Navistar at a 25% premium of $15.76 per share. The companies hint that VW eventually could buy out its partner. The deal brings together Navistar’s International and IC Bus brands with VW’s MAN, Scania and internal commercial truck unit.

The partners say their technology sharing will focus on the powertrain, including electrified options. It also will delve into self-driving systems and cab and chassis components. U.S. commercial trucks favor a cab with a hood in front, whereas European customers prefer the flat-fronted cab-over-engine configuration.

Navistar has been looking for a partner since 2010, when it bet on a low-cost approach to meeting U.S. diesel emission standards that failed. The company abandoned its exhaust-gas recirculation system in 2012 after paying roughly $40 million in fines that enabled it to temporarily sell noncompliant diesels. Navistar purchased diesels from rival Cummins Inc. as it scrambled to adopt the costlier but more effective urea-based catalytic converter system for its own engines.

The Navistar deal will help expand VW’s presence in North America, give the company access to a large established dealer network in the region and bring the company closer to surpassing Daimler AG in the large commercial truck market.