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Caterpillar and Navistar to Pursue Strategic Alliance on Engine Technologies

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Caterpillar
Inc. and Navistar International Corp. announced that they have signed a
Memorandum of Understanding (MOU) to pursue global on-highway truck
business opportunities and cooperate on a variety of engine platforms.
The two companies intend to focus on global truck opportunities,
including North American severe service construction trucks, as well as
technology development for engines worldwide.

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"We are pleased to be matching the formidable talents and
technology leadership of two industry leaders to serve an expanding
base of engine, truck and equipment customers worldwide," said Jim
Owens, Caterpillar chairman and chief executive officer. "As the world
leader in construction equipment and diesel engines, Caterpillar is now
positioning itself for growth in the on-highway truck market. This is
an important step for Caterpillar and we look forward to working with
Navistar for the continued benefit of our customers."

"This relationship is a perfect example of Navistar’s strategy of
growth through leveraging our own assets and those that others have
built," said Daniel C. Ustian, Navistar chairman, president and CEO.
"In partnership with Caterpillar we intend to extend our leading-edge
product focus that we have in North America into the rest of the
world."

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Through this alliance, Caterpillar plans to target a 2010
introduction of a North American Cat branded heavy-duty truck for
severe service applications, such as road construction, large
infrastructure projects and oil and petroleum development. Concurrent
with this new strategic direction, Caterpillar has determined
independently that it will not supply EPA 2010 compliant engines to
truck and other on-highway original equipment manufacturers (OEMs).

"Caterpillar and our dealers will continue to provide product
support and service beyond 2010 for all Caterpillar on-highway engines
regardless of truck brand," said Douglas R. Oberhelman, Caterpillar
group president. "This new truck — targeted for 2010 — will
incorporate the legendary quality of Caterpillar’s construction and
mining machines and provide construction customers a one-stop solution.
In addition, with nearly 90 percent of our engine business being
off-highway, we’ll continue to concentrate on our substantial and
growing opportunities to supply engines in the petroleum, marine,
electric power generation and industrial markets — as well as produce
engines for our own construction and mining equipment."

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The companies have commissioned teams to focus on the truck and
engine opportunities. The initiatives contemplated by the MOU are
subject to completion of due diligence, execution of definitive
agreements and regulatory approvals.

Global Truck Collaboration

The companies
intend to work together to develop, manufacture and distribute
commercial trucks in select regions outside of North America. The
product offering would include a full line of medium and heavy-duty
trucks in both conventional and cab over designs.

"The combination of Navistar’s truck design, development and
manufacturing expertise and Caterpillar’s unparalleled worldwide
distribution creates a significant advantage for global customers
through the ability to offer the right vehicle for the right
application through more than 4,700 points of distribution around the
world," said Dee Kapur, president, Navistar Truck Group. "The North
American Caterpillar distribution system provides expanded reach for
severe service trucks with big bore power, a segment where Navistar has
traditionally not been as focused."

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"This is a natural extension of Caterpillar’s more than 40 years
serving on-highway customers with proven, award winning
technology-combined with unsurpassed global distribution and product
support," said George Taylor, director of Caterpillar On-Highway
Engines.

In addition to the United States and Canada, Navistar has a
substantial distribution network in Mexico and Latin America.
Caterpillar currently sells on-highway truck engines in Australia and
New Zealand, Mexico and throughout Latin America, as well as in the
United Kingdom, Belgium, Russia, China and South Africa.

Engine Technology

Under the alliance,
Caterpillar and Navistar plan to cooperate on engine development,
incorporating "best in class" technologies from both companies.
Caterpillar and Navistar intend to work together on development of
mid-range engines for diesel applications, such as school buses and
utility trucks. This engine development would support each company’s
stated path not to utilize urea-based Selective Catalytic Reduction
(SCR) technology.

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"There are many opportunities for technology sharing and
development that would result in the ability to better meet the
worldwide demand for diesel engines in both on and off-highway
applications," said Jack Allen, President, Navistar Engine Group.

"In the past 15 years, Cat has become significantly less dependent
on the sale of on-highway truck engines in the total contribution of
our global engine profitability," said Oberhelman. "Our global power
systems business has grown significantly — in fact we supply
approximately 400,000 diesel engines annually outside of the on-highway
truck market. We intend to remain the world leader in clean diesel
engines, and this collaboration is a key enabler."

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Remanufacturing Growth and Additional Synergies

Through
the alliance, the companies also intend to expand their existing
remanufacturing relationship to include Navistar’s recently introduced
MaxxForce on-highway engines. The companies expect to pursue additional
remanufacturing opportunities as new vehicles and engines are
developed.

Caterpillar and Navistar plan to explore opportunities to leverage
their scale. Combining raw material and other commodity purchases is
just one example of how the two companies can work together to reduce
costs.

More information is available at http://www.cat.com and http://www.navistar.com.

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