<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


          (X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended  April 30, 1998

                                       OR

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to

Commission file number 1-5236

                   NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
                   -------------------------------------------
             (Exact name of registrant as specified in its charter)

                      Delaware                             36-1264810
            ------------------------------             -------------------
           (State or other jurisdiction of             I.R.S. Employer
           incorporation or organization)              Identification No.)

 455 North Cityfront Plaza Drive, Chicago, Illinois           60611
 --------------------------------------------------    -------------------
         (Address of principal executive offices)           (Zip Code)

        Registrant's telephone number, including area code (312) 836-2000


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days. Yes  X  No
                                       ---    ---

                       APPLICABLE ONLY TO ISSUERS INVOLVED
                        IN BANKRUPTCY PROCEEDINGS DURING
                            THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes    No
                          ---   ---


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

As of June 10, 1998, the number of shares outstanding of the registrant's Common
Stock was 1,000.

THE  REGISTRANT  IS  A  WHOLLY  OWNED   SUBSIDIARY  OF  NAVISTAR   INTERNATIONAL
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL  INSTRUCTIONS H(1) (a)
AND (b) OF THE FORM 10-Q AND IS  THEREFORE  FILING  THIS  FORM WITH THE  REDUCED
DISCLOSURE FORMAT.

                                     - 1 -

<PAGE>
                   NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
                          AND CONSOLIDATED SUBSIDIARIES
                          --------------------------


                                      INDEX
                                     ---------
                                                                     Page
                                                                   Reference
                                                                   ---------
Part I.  Financial Information:

     Item 1. Financial Statements:

     Statement of Income --
         Three Months and Six Months
           Ended April 30, 1998 and 1997.......................        3

     Statement of Financial Condition --
         April 30, 1998, October 31, 1997 and April 30, 1997...        4

     Statement of Cash Flow --
         Six Months Ended April 30, 1998 and 1997..............        5

     Notes to Financial Statements.............................        6

     Item 2.  Management's Discussion and Analysis of Results
              of Operations and Financial Condition............       10

Part II. Other Information:

     Item 1.    Legal Proceedings...............................      16

     Item 6.    Exhibits and Reports on Form 8-K................      16

     Signature..................................................      17

Exhibit 3.......................................................     E-1
Exhibit 4.......................................................     E-2
Exhibit 10......................................................     E-3

                                     - 2 -

<PAGE>

                                   PART I - FINANCIAL INFORMATION
                                   ------------------------------

 ITEM 1.  Financial Statements
<TABLE>
<CAPTION>
 STATEMENT OF INCOME (Unaudited)
 ---------------------------------------------------------------------------------------
 Millions of dollars
 ---------------------------------------------------------------------------------------
                                                       Navistar International
                                                         Transportation Corp.
                                                   and Consolidated Subsidiaries
                                             -------------------------------------------
                                             Three Months Ended         Six Months Ended
                                                  April 30                  April 30
                                             ------------------         ----------------
                                               1998      1997            1998      1997
                                              ------    ------          ------    ------
<S>                                           <C>       <C>             <C>       <C>
Sales and revenues
Sales of manufactured products ..........     $1,955    $1,493          $3,607    $2,733
Finance and insurance revenue ...........         47        43              92        88
Other income ............................          6         7              12        11
                                              ------    ------          ------    ------
  Total sales and revenues ..............      2,008     1,543           3,711     2,832
                                              ------    ------          ------    ------

Costs and expenses
Cost of products and services sold ......      1,677     1,292           3,117     2,368
Postretirement benefits .................         43        57              88       108
Engineering and research expense ........         46        32              81        62
Marketing and administrative expense ....         95        87             191       170
Interest expense ........................         43        41              82        79
Financing charges on sold receivables ...          7         5              15        12
Insurance claims and underwriting expense          9         9              18        17
                                              ------    ------          ------    ------
  Total costs and expenses ..............      1,920     1,523           3,592     2,816
                                              ------    ------          ------    ------

    Income before income taxes ..........         88        20             119        16
    Income tax expense ..................         11         4              20        15
                                              ------    ------          ------    ------
Net income ..............................     $   77    $   16              99    $    1
                                              ======    ======          ======    ======
<FN>
See Notes to Financial Statements.
</FN>
</TABLE>

                                     - 3 -

<PAGE>

<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
----------------------------------------------------------------------------------------
Millions of dollars
----------------------------------------------------------------------------------------
                                             Navistar International Transportation Corp.
                                                     and Consolidated Subsidiaries
                                            --------------------------------------------
                                             April 30        October 31        April 30
                                               1998             1997             1997
                                            ----------       ----------       ----------
<S>                                           <C>              <C>              <C>
ASSETS
-----------------------------------
Cash and cash equivalents .........           $  106           $  164           $   40
Marketable securities .............              127              127              132
                                              ------           ------           ------
                                                 233              291              172
Receivables, net ..................            2,026            1,827            1,614
Inventories .......................              547              484              503
Property, net of accumulated
  depreciation and amortization
  of $890, $846, and $874..........              824              752              748
Investments and other assets ......              304              304              301
Intangible pension assets .........              212              212              267
                                              ------           ------           ------
Total assets ......................           $4,146           $3,870           $3,605
                                              ======           ======           ======
LIABILITIES AND SHAREOWNER'S EQUITY
-----------------------------------
Liabilities
Accounts payable, principally trade           $1,129           $1,082           $  907
Debt due Parent Company ...........              833              833              881
Debt:
  Manufacturing operations ........               61               92              109
  Financial services operations ...            1,592            1,224            1,213
Postretirement benefits liability .              910            1,186            1,200
Other liabilities .................              936              868              801
                                              ------           ------           ------
    Total liabilities .............            5,461            5,285            5,111
                                              ------           ------           ------

Commitments and contingencies

Shareowner's equity
Capital stock (1,000 shares issued)              786              786              786
Retained earnings (deficit) .......           (2,101)          (2,201)          (2,292)
                                              ------           ------           ------
    Total shareowner's equity .....           (1,315)          (1,415)          (1,506)
                                              ------           ------           ------
Total liabilities                             $4,146           $3,870           $3,605
  and shareowner's equity .........           ======           ======           ======

<FN>
See Notes to Financial Statements.
</FN>
</TABLE>

                                     - 4 -

<PAGE>

 STATEMENT OF CASH FLOW (Unaudited)
 --------------------------------------------------------------------------
 For the Six Months Ended April 30 (Millions of dollars)
 --------------------------------------------------------------------------
                                                    Navistar International
                                                   Transportation Corp. and
                                                  Consolidated Subsidiaries
                                                  -------------------------
                                                     1998            1997
                                                    ------          ------
Cash flow from operations
Net income .....................................    $   99          $    1
Adjustments to reconcile net income
to cash used in operations:
  Depreciation and amortization ................        79              60
  Postretirement benefits funding in excess
    of expense .................................      (283)           (145)
  Other, net ...................................       (18)            (16)
Change in operating assets and liabilities:
  Receivables ..................................      (145)            (69)
  Inventories ..................................       (62)            (18)
  Prepaid and other current assets .............       (10)             (5)
  Accounts payable .............................        51              93
  Other liabilities ............................        76              18
                                                    ------          ------
Cash used in operations ........................      (213)            (81)
                                                    ------          ------
Cash flow from investment programs
Purchase of retail notes and lease receivables .      (576)           (445)
Collections/sales of retail notes
   and lease receivables .......................       520             518
Purchase of marketable securities ..............       (26)            (53)
Sales or maturities of marketable securities ...        28              66
Capital expenditures ...........................       (62)            (58)
Property and equipment leased to others ........       (88)            (16)
Other investment programs, net .................        16               5
                                                    ------          ------
Cash (used in) provided by investment programs .      (188)             17
                                                    ------          ------

Cash flow from financing activities
Issuance of debt ...............................        92              79
Principal payments on debt .....................       (61)            (18)
Net increase  (decrease)  in notes and debt
  outstanding  under  bank  revolving credit
  facility and asset-backed and other commercial
  paper programs ...............................       312            (158)
Net decrease in loan from Navistar International
  Corporation ..................................         -              (3)
                                                    ------          ------
Cash provided by (used in) financing activities.       343            (100)
                                                    ------          ------
Cash and cash equivalents
  Decrease during the period ...................       (58)           (164)
  At beginning of the year .....................       164             204
                                                    ------          ------
Cash and cash equivalents at end of the period .    $  106          $   40
                                                    ======          ======
See Notes to Financial Statements.

                                     - 5 -

<PAGE>

    Navistar International Transportation Corp. and Consolidated Subsidiaries
                    Notes to Financial Statements (Unaudited)

Note A.    Summary of Accounting Policies

       Navistar  International  Transportation  Corp.,  hereafter referred to as
"the company" and  "Transportation"  is the wholly owned  subsidiary of Navistar
International  Corporation,   hereafter  referred  to  as  "Parent  Company"  or
"Navistar."  The  consolidated  financial  statements  include  the  results  of
Transportation's   manufacturing  operations  and  its  wholly  owned  financial
services subsidiaries. The effects of transactions between the manufacturing and
financial services operations have been eliminated to arrive at the consolidated
totals.

       The  accompanying  unaudited  financial  statements have been prepared in
accordance with accounting  policies described in the 1997 Annual Report on Form
10-K and should be read in conjunction with the disclosures therein.

       In the opinion of management,  these interim financial statements reflect
all adjustments,  consisting of normal recurring accruals,  necessary to present
fairly  the  financial  position,  results of  operations  and cash flow for the
periods presented. Interim results are not necessarily indicative of results for
the full year.  Certain 1997 amounts have been  reclassified to conform with the
presentation used in the 1998 financial statements.

Note B.  Supplemental Cash Flow Information

     Consolidated interest payments during the first six months of 1998 and 1997
were $85 million and $79 million, respectively.

Note C.  Income Taxes

       The Parent  Company files a consolidated  U.S.  federal income tax return
which includes  Transportation and its U.S.  subsidiaries.  Transportation has a
tax allocation agreement (Tax Agreement) with the Parent Company, which requires
Transportation  to compute its separate  federal income tax expense based on its
adjusted book income. Any resulting tax liability is paid to the Parent Company.
In addition,  under the Tax Agreement,  Transportation is required to pay to the
Parent Company any tax payments  received from its  subsidiaries.  The effect of
the Tax Agreement is to allow the Parent Company rather than  Transportation  to
utilize U.S. operating losses and loss carryforwards generated in earlier years.

Note D.  Inventories

       Inventories are as follows:

                                April 30          October 31           April 30
Millions of dollars               1998               1997                1997
-------------------------------------------------------------------------------
Finished products...........    $    245           $    222           $    268
Work in process.............         141                105                101
Raw materials and supplies..         161                157                134
                                --------           --------           --------
Total inventories...........    $    547           $    484           $    503
                                ========           ========           ========

                                     - 6 -

<PAGE>

    Navistar International Transportation Corp. and Consolidated Subsidiaries
                    Notes to Financial Statements (Unaudited)

Note E.  Financial Instruments

         Transportation  purchases  collateralized  mortgage  obligations (CMOs)
that have  predetermined  fixed-principal  payment patterns which are relatively
certain.  These instruments  totaled $36 million at April 30, 1998. At April 30,
the unrecognized gain on the CMOs was not material.

       In June 1998, Navistar Financial Corporation,  (NFC) sold $501 million of
retail notes, net of unearned  finance income,  recognizing a gain of $8 million
on the sale. The proceeds of $482 million,  net of underwriting  fees and credit
enhancements, were used by NFC for general working capital purposes.

       NFC entered into $400 million of forward  treasury locks in  anticipation
of a June 1998 sale of retail receivables. These hedge agreements were closed in
conjunction with the pricing of the sale and resulted in an immaterial gain.

       NFC  also  entered  into  a  $100  million   forward   treasury  lock  in
anticipation of a November 1998 sale of retail receivables. This hedge agreement
will be closed in  conjunction  with the  pricing of the sale and any  resulting
gain or loss  will be  included  in the gain or loss on the sale of  receivables
recognized in November 1998.

Note F.  New Accounting Pronouncements

       In  February  1998,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 132,  "Employers'  Disclosures
about  Pensions  and Other  Postretirement  Benefits."  This  statement  revises
standards for disclosures about pension and other  postretirement  benefit plans
and is  effective  for fiscal years  beginning  after  December  15, 1997.  This
standard expands or modifies disclosure and,  accordingly will have no impact on
Transportation's  reported  financial  position,  results of operations and cash
flows.

       In March 1998,  the American  Institute of Certified  Public  Accountants
issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of  Computer
Software Developed or Obtained for Internal Use." This statement defines whether
or not certain costs related to the  development  or acquisition of internal use
software  should be expensed or  capitalized  and is effective  for fiscal years
beginning  after December 15, 1998.  Transportation  is currently  assessing the
impact of this statement on its results of operations and financial position.

Note G.  Debt and Equity Offerings

     On February 4, 1998  Navistar  issued $100 million 7% Senior Notes due 2003
and $250  million 8% Senior  Subordinated  Notes due 2008.  The  proceeds of the
Senior Notes were used to prepay an 8% Secured Note due 2002 and will be used to
redeem the 9% Sinking Fund  Debentures on June 15, 1998. (The company called the
9%  Sinking  Fund  Debentures  during  May  1998). The  proceeds  of  the Senior

                                      - 7 -

<PAGE>

    Navistar International Transportation Corp. and Consolidated Subsidiaries
                    Notes to Financial Statements (Unaudited)

Note G.  Debt and Equity Offerings (continued)

Subordinated Notes were used to redeem the Parent Company's $240 million,  $6.00
Series G  Convertible  Cumulative  Preferred  Stock and to pay  accumulated  and
unpaid dividends thereon. Excess proceeds from both debt issues will be used for
general working capital purposes.

       On June 8, 1998, a secondary  public  offering of the common stock of the
Parent Company was completed, in which the Navistar International Transportation
Corp. Retiree  Supplemental Benefit Trust sold approximately 19.9 million shares
of common stock at an offering price of $26.50 per share.  In  conjunction  with
this offering,  the company and certain of the company's pension plans purchased
2 million and 3 million, respectively, of the shares being offered. Navistar has
also  granted the  underwriters  an option to purchase up to an  additional  1.3
million shares to cover over-allotments, if any. The company did not receive any
proceeds  from the sale of the  shares  in the  offering  but will pay  expenses
related to this offering estimated at $14 million, which will be expensed in the
third quarter of 1998.

Note H.  Supplemental Financial Information

Navistar International Transportation  Corp. (with financial services operations
operations  on an equity  basis) in millions of dollars:

<TABLE>
<CAPTION>
                                        Three Months Ended      Six Months  Ended
                                              April 30               April 30
                                       --------------------    --------------------
Condensed Statement of Income            1998        1997        1998        1997
----------------------------------     --------    --------    --------    --------
<S>                                    <C>         <C>         <C>         <C>
Sales of manufactured products......   $  1,955    $  1,493    $  3,607    $  2,733
Other income........................          5           7          10           9
                                       --------    --------    --------    --------
Total sales and revenues............      1,960       1,500       3,617       2,742
                                       --------    --------    --------    --------

Cost of products sold...............      1,670       1,287       3,104       2,358
Postretirement benefits.............         43          57          88         108
Engineering and research expense....         46          32          81          62
Marketing and administrative expense         86          79         173         154
Other expenses......................         46          41          94          83
                                       --------    --------    --------    --------
Total costs and expenses............      1,891       1,496       3,540       2,765
                                       --------    --------    --------    --------

Income before income taxes
  Manufacturing operations..........         69           4          77         (23)
  Financial services operations.....         19          16          42          39
                                       --------    --------    --------    --------
    Income before income taxes......         88          20         119          16
    Income tax expense..............         11           4          20          15
                                       --------    --------    --------    --------
Net income..........................   $     77    $     16    $     99    $      1
                                       ========    ========    ========    ========
</TABLE>

                                     - 8 -

<PAGE>

    Navistar International Transportation Corp. and Consolidated Subsidiaries
                    Notes to Financial Statements (Unaudited)

Note H.  Supplemental Financial Information  (continued)

Navistar International Transportation Corp. (with financial services operations
on an equity basis) in millions of dollars:

<TABLE>
<CAPTION>
                                             April 30       October 31       April 30
                                               1998            1997            1998
                                             --------       ----------       --------
<S>                                          <C>             <C>             <C>
Condensed Statement of Financial Condition
------------------------------------------
Cash, cash equivalents
  and marketable securities...............   $     39        $    128        $     12
Inventories...............................        533             471             473
Property and equipment, net...............        620             623             637
Equity in nonconsolidated subsidiaries....        323             322             306
Other assets..............................        868             921             775
                                             --------        --------        --------
Total assets..............................   $  2,383        $  2,465        $  2,203
                                             ========        ========        ========

Accounts payable, principally trade.......   $  1,095        $  1,042        $    862
Postretirement benefits liabilities.......        902           1,178           1,192
Other liabilities.........................      1,701           1,660           1,655
Shareowner's equity.......................     (1,315)         (1,415)         (1,506)
                                             --------        --------        --------
     Total liabilities
         and shareowner's equity...........  $  2,383        $  2,465        $  2,203
                                             ========        ========        ========
</TABLE>

                                                           Six Months Ended
                                                               April 30
                                                        -----------------------
Condensed Statement of Cash Flow                           1998           1997
-----------------------------------------------         --------       --------
Cash flow from operations
Net income.....................................         $     99        $     1
Adjustments to reconcile net income
  to cash used in operations:
     Depreciation and amortization.............               64             49
     Postretirement benefits funding
       in excess of expense....................             (283)          (145)
     Other, net................................              (10)             -
     Change in operating assets and liabilities              127             94
                                                        --------        -------
Cash used in operations........................               (3)            (1)
                                                        --------        -------

Cash flow from investment programs
Sales or maturities of marketable securities...               -              5
Capital expenditures...........................             (62)           (58)
Receivable from Navistar Financial Corporation.              (8)           (98)
Other investment programs, net ................              16              4
                                                       --------       --------
Cash used in investment programs...............             (54)          (147)
                                                       --------        -------

Cash flow from financing activities............             (32)           (10)
                                                       --------       --------

Cash and cash equivalents
Decrease during the period.....................             (89)          (158)
At beginning of the year.......................             128            170
                                                       --------       --------
Cash and cash equivalents at end of the period.        $     39       $     12
                                                       ========       ========

                                     - 9 -


<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
        OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

       Certain  statements  under  this  caption   constitute   "forward-looking
statements"  under the  Reform  Act,  which  involve  risks  and  uncertainties.
Navistar  International   Transportation  Corp'.s.  actual  results  may  differ
significantly  from the results  discussed in such  forward-looking  statements.
Factors  that might  cause such a  difference  include,  but are not limited to,
those discussed under the heading "Business Environment."

       Second Quarter Ended April 30, 1998

       Transportation  reported net income of $77 million for the second quarter
ended April 30, 1998, compared with net income of $16 million for the comparable
quarter last year.

       Transportation's  manufacturing  operations reported income before income
taxes of $69 million  compared  with  pretax  income of $4 million in the second
quarter of 1997 reflecting an increase in the demand for trucks and engines. The
financial services  operations' pretax income for the second quarter of 1998 was
$19 million  compared  with $16 million in the prior year  reflecting  increased
finance receivable balances.

Sales and Revenues. Second quarter 1998 industry retail sales of Class 5 through
8 trucks  totaled  96,600 units,  which is 10% higher than the 87,500 units sold
during this period in 1997. Class 8 heavy truck sales of 56,500 units during the
second  quarter  of 1998 were 15% higher  than the 1997  level of 49,000  units.
Industry  sales  of  Class 5, 6 and 7 medium  trucks,  including  school  buses,
increased 4% to 40,100 units.  Industry sales of school buses,  which  accounted
for 18% of the medium truck market, increased 2%.

       Sales and revenues for the second quarter of 1998 totaled $2,008 million,
30% higher than the $1,543 million reported for the comparable  quarter in 1997.
Sales of trucks,  mid-range  diesel  engines  and  service  parts for the second
quarter of 1998 totaled $1,955 million compared with $1,493 million reported for
the same period in 1997.

       The  company  maintained  its  position as sales  leader in the  combined
United  States and  Canadian  Class 5 through 8 truck market with a 29.6% market
share for the second  quarter of 1998,  an increase  from the 26.9% market share
reported  in 1997.  (Sources:  American  Automobile  Manufacturers  Association,
Canadian Vehicle Manufacturers Association, and R.L. Polk & Company.)

       Shipments of mid-range  diesel  engines by the company to other  original
equipment  manufacturers during the second quarter of 1998 totaled 56,000 units,
a 16%  increase  from the same period of 1997.  Higher  shipments  to Ford Motor
Company to meet  consumer  demand  for the light  trucks and vans which use this
engine were the primary reason for the increase.

                                     - 10 -

<PAGE>

       Service  parts  sales  of $217  million  in the  second  quarter  of 1998
increased 7% from the prior year's level.

     Finance and insurance  revenue of $47 million in the second quarter of 1998
increased  9% from 1997,  primarily  as a result of  increased  retail notes and
lease financing receivables.

Costs and expenses.   Manufacturing  gross  margin was 14.6% of  sales for  the
second quarter of 1998 compared with 13.8% for the same period in 1997.

       Consolidated  marketing  and  administrative  expense  increased  to  $95
million  in 1998 from $87  million  in the  second  quarter  of 1997  reflecting
investment in the implementation of the company's truck strategy to reduce costs
and complexity in its  manufacturing  processes and an increase in the provision
for payment to  employees  as provided by the  company's  performance  incentive
programs.

       Postretirement benefits expense decreased to $43 million in 1998 from $57
million in the  second  quarter  of 1997  mainly as a result of higher  excepted
return on plan assets.

     Engineering  and  research  expense  increased  $14 million from the second
quarter of 1997 to $46 million,  reflecting the company's  investment in its NGV
program.

       Six Months Ended April 30, 1998
       -------------------------------

       Pretax income for the first six months of 1998 was $119 million  compared
with  $16  million   reported  for  the  same  period  of  1997.  The  company's
manufacturing  operations  reported  income  before  income taxes of $77 million
during this period, compared with a pretax loss of $23 million reported in 1997.
The  financial  services  operations'  pretax income for the first six months of
1998 was $42 million,  an increase from the $39 million  reported in 1997.  This
change is primarily a result of an increase in finance receivable balances.

       Manufacturing  operations'  sales and revenues during this period totaled
$3,617  million,  an increase  of 32% from 1997.  During the first six months of
1998,  sales of trucks  increased 42% while sales of diesel  engines to original
equipment  manufacturers  increased 16%. Service parts sales were 3% higher than
in the same period of 1997. Finance and insurance revenue was $92 million during
the first two quarters of 1998 compared with $88 million in 1997.

       Industry  retail  sales of Class 5 through 8 trucks  during the first six
months of 1998 totaled  182,200  units,  an increase from the 159,600 units sold
during  this  period in 1997.  The  company  remained  the  sales  leader in the
combined United States and Canadian Class 5 through 8 truck market for the first
two quarters of the year with a 29.4% market  share,  an increase over the 26.7%
market share reported for the same period last year.

                                     - 11 -

<PAGE>

       Manufacturing  gross  margin  for the first six  months of 1998 was 13.9%
compared with 13.7% in 1997.  Consolidated  marketing and administrative expense
was $191 million during this period  compared with $170 million during the first
two quarters of 1997. The factors which influenced  marketing and administrative
expense,  postretirement  benefits  expense and engineering and research expense
during  the  second  quarter  of 1998 were also  primarily  responsible  for the
changes during the first half of the year.

Liquidity and Capital Resources

       Cash flow is generated from the manufacture and sale of trucks, mid-range
diesel  engines and service  parts as well as product  financing  and  insurance
coverage provided to the company's dealers and retail customers by the financial
services operations.

       Historically,  funds to finance  Transportation's  products  are obtained
from a combination of commercial  paper,  short- and long-term bank  borrowings,
medium- and  long-term  debt  issues,  sales of finance  receivables  and equity
capital.  NFC's current debt ratings have made sales of finance  receivables the
most  economic  source of  funding.  Insurance  operations  are  funded  through
internal operations.

       Total cash, cash equivalents and marketable  securities of Transportation
amounted to $233 million at April 30, 1998, $291 million at October 31, 1997 and
$172 million at April 30, 1997.

       Cash used in operations  during the first six months of 1998 totaled $213
million  primarily from excess  postretirement  benefits funding of $283 million
and from a net change in operating  assets and liabilities of $90 million offset
by net income of $99 million and $61 million of other noncash items, principally
depreciation.  In  addition  to regular  postretirement  benefit  payments,  the
company  contributed $200 million to the Retiree Health Care Base Plan Trust and
$100 million to the hourly pension plan during the first six months of 1998. The
net change in operating assets and liabilities  included a $145 million increase
in  receivables  primarily  due to strong  sales  during the first six months of
1998. The $62 million  increase in inventory,  the $76 million increase in other
liabilities and the $51 million  increase in accounts payable were primarily due
to timing of cash payments and higher production volume.

       Investment  programs used $188 million in cash  reflecting a net increase
in  retail  notes and lease  receivables  of $56  million  and $88  million  for
property and equipment  leased to others.  In addition,  $62 million was used to
fund capital  expenditures to increase  mid-range diesel engine capacity and for
truck product improvements.

       Financing  activities  provided $343 million in cash  primarily due to an
increase of $312 million in notes and debt outstanding  under the bank revolving
credit facility and other  commercial paper program as well as a $31 million net
increase in debt.

                                     - 12 -

<PAGE>

       On June 8, 1998, a secondary  public  offering of the common stock of the
Parent Company was completed, in which the Navistar International Transportation
Corp. Retiree  Supplemental Benefit Trust sold approximately 19.9 million shares
of common stock at an offering price of $26.50 per share.  In  conjunction  with
this offering,  the company and certain of the company's pension plans purchased
2 million and 3 million, respectively, of the shares being offered. Navistar has
also  granted the  underwriters  an option to purchase up to an  additional  1.3
million shares to cover over-allotments, if any. The company did not receive any
proceeds  from the sale of the  shares  in the  offering  but will pay  expenses
related to this offering estimated at $14 million, which will be expensed in the
third quarter of 1998.

     During May 1998, the company called its 9% Sinking Fund Debentures due June
2004. These debentures will be redeemed on June 15, 1998 for  approximately  $47
million including accrued interest.

       Receivable  sales were a significant  source of funding in 1998 and 1997.
During the first six months of 1998 and of 1997,  NFC sold $500 million and $486
million,  respectively,  of  retail  notes  through  Navistar  Financial  Retail
Receivables  Corporation (NFRRC).  NFRRC has filed registration  statements with
the Securities and Exchange  Commission  which provide for the issuance of up to
$5,000  million of  asset-backed  securities.  At April 30, 1998,  the remaining
shelf registration available to NFRRC was $973 million.

       At April 30, 1998,  available  funding  under NFC's  amended and restated
credit facility and the asset-backed commercial paper facility was $242 million,
of which $138 million was used to back  short-term  debt at April 30, 1998.  The
remaining  $104  million,   when  combined  with   unrestricted  cash  and  cash
equivalents made $143 million available to fund the general business purposes of
NFC at April 30, 1998.

     Transportation  purchases  collateralized  mortgage obligations (CMOs) that
have  predetermined   fixed-principal  payment  patterns  which  are  relatively
certain.  These instruments  totaled $36 million at April 30, 1998. At April 30,
the unrecognized gain on the CMOs was not material.

       In June 1998,  NFC sold $501  million of retail  notes,  net of  unearned
finance  income,  recognizing a gain of $8 million on the sale.  The proceeds of
$482 million, net of underwriting fees and credit enhancements, were used by NFC
for general working capital purposes.

       NFC entered into $400 million of forward  treasury locks in  anticipation
of a June 1998 sale of retail receivables. These hedge agreements were closed in
conjunction with the pricing of the sale and resulted in an immaterial gain.

       NFC  also  entered  into  a  $100  million   forward   treasury  lock  in
anticipation of a November 1998 sale of retail receivables. This hedge agreement
will be closed in  conjunction  with the  pricing of the sale and any  resulting
gain or loss  will be  included  in the gain or loss on the sale of  receivables
recognized in November 1998.

                                     - 13 -

<PAGE>

       The company had outstanding  capital commitments of $107 million at April
30, 1998,  primarily for increased  manufacturing  capacity at the  Indianapolis
engine plant and improvements to existing facilities and products.

       Management  continues to evaluate  current and forecasted  cash flow as a
basis for financing operating requirements and capital expenditures.  Management
believes that collections on the outstanding  receivables  portfolios as well as
funds available from various funding sources will permit the financial  services
operations to meet the financing  requirements of  Transportation's  dealers and
customers.

Year 2000

       Transportation  has identified  all  significant  applications  that will
require  modification  to ensure Year 2000  compliance.  Internal  and  external
resources are being used to make the required  modifications  and test Year 2000
compliance.  Transportation  plans to  complete  the  modifications  and testing
process of all  significant  applications  by July  1999,  which is prior to any
anticipated  impact on its  operating  systems.  The total cost of the Year 2000
project has not been and is not  anticipated to be material to  Transportation's
financial position or results of operations and will be funded through operating
cash flows.

       The costs of the project and the date on which Transportation believes it
will  complete  the Year  2000  modifications  are  based on  management's  best
estimates,  which were derived utilizing numerous  assumptions of future events,
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated.  Specific factors that might cause such material  differences
include,  but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.

       In addition,  Transportation  has  communicated  with others with whom it
does significant  business to determine their Year 2000 compliance readiness and
the  extent to which the  company  is  vulnerable  to any third  party Year 2000
issues. However, there can be no guarantee that the systems or products of other
companies,  including  Transportation's  dealers, on which Transportation relies
will be timely converted,  or that a failure to convert by another company, or a
conversion that is incompatible with Transportation's  systems, would not have a
material adverse affect on Transportation.

Impact of Government Regulation

     For model year 1998, the U.S. EPA has issued  conditional  certification of
conformance for  electronically-controlled  diesel engines while it investigates
whether these engines fully comply with  regulations  concerning  nitrogen oxide
emissions.  In  particular,   the  U.S.  EPA  is  focusing  on  whether  certain
electronics  strategies  used to attain fuel economy  have an adverse  impact on
nitrogen oxide emissions.  In connection with its investigation the U.S. EPA has
made demand upon  Transportation  that it enter into a consent decree providing,
among other  things,  for the payment of fines in excess of $100,000 for alleged
violations of U.S. EPA emissions standards.  Transportation  believes the diesel
engines  manufactured  by it are in  compliance  with all  applicable  U.S.  EPA
standards  and is engaged in  confidential  discussions  with the U.S. EPA in an
effort to resolve this issue.  It is premature at this time to predict the final
results of these  discussions.

                                     - 14 -

<PAGE>

New Pronouncements

       In  February  1998,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 132,  "Employers'  Disclosures
about  Pensions  and Other  Postretirement  Benefits."  This  statement  revises
standards for disclosures about pension and other  postretirement  benefit plans
and is  effective  for fiscal years  beginning  after  December  15, 1997.  This
standard expands or modifies disclosure and,  accordingly will have no impact on
Transportation's  reported  financial  position,  results of operations and cash
flows.

       In March 1998,  the American  Institute of Certified  Public  Accountants
issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of  Computer
Software  Developed or Obtained for Internal Use". This statement  defines which
costs related to the  development or acquisition of internal use software should
be expensed or  capitalized  and is effective for fiscal years  beginning  after
December 15, 1998.  Transportation  is  currently  assessing  the impact of this
statement on its results of operations and financial position.

Business Environment

       Sales of Class 5 through 8 trucks are cyclical,  with demand  affected by
such  economic  factors  as  industrial  production,  construction,  demand  for
consumer durable goods, interest rates and the earnings and cash flow of dealers
and customers.  Reflecting the stability of the general economy,  demand for new
trucks  remained strong during the second quarter of 1998. An improvement in the
number of new truck  orders  has  increased  Transportation's  order  backlog to
65,400  units at April 30,  1998 from  34,900  units at April 30,  1997.  Retail
deliveries  in 1998  continue  to be highly  dependent  on the rate at which new
truck orders are  received.  Transportation  will  evaluate  order  receipts and
backlog  throughout  the  year  and  will  balance  production  with  demand  as
appropriate.

       A stronger than expected economy has led  Transportation  to increase its
estimates of demand.  Transportation  currently  projects 1998 United States and
Canadian  Class 8 heavy truck demand to be 230,000  units,  a 17% increase  from
1997. Class 5, 6 and 7 medium truck demand,  excluding school buses, is forecast
at 127,000 units, an 8% increase from 1997.  Demand for school buses is expected
to decline  slightly in 1998 to 32,000 units.  Mid-range diesel engine shipments
by the company to original  equipment  manufacturers  in 1998 are expected to be
215,500 units, 17% higher than in 1997. Transportation's service parts sales are
projected to grow 9% to $875 million.

       At the  currently  forecasted  1998 demand of 389,000  units,  the entire
truck  industry  is  operating  at  or  near  capacity  while   Transportation's
manufacturing facilities are near capacity. Additionally,  constraints have been
placed on Transportation's ability to meet certain customers' demands because of
component parts availability.

       During March 1998,  Transportation announced that it has been selected to
negotiate an extended term  agreement to supply  diesel  engines for select Ford
Motor Company under 8,500 lbs. GVW light duty trucks and sport utility vehicles.

                                     - 15 -

<PAGE>

    Navistar International Transportation Corp. and Consolidated Subsidiaries

                           PART II - OTHER INFORMATION
                           ---------------------------


Item 1.       Legal Proceedings

              Incorporated herein by reference from Item 3 - "Legal Proceedings"
              in Transportation's  definitive Form 10-K dated December 22, 1997,
              Commission File No. 1-5236.


Item 6.       Exhibits and Reports on Form 8-K

                (a)   Exhibits:
                                                                      10-Q Page
                                                                      ---------

                      3.   Articles of Incorporation and By-Laws          E-1
                      4.   Instruments Defining Rights of Security
                           Holders, Including Indentures                  E-2
                      10.  Material Contracts                             E-3

                (b) Reports on Form 8-K:

                      No  reports  on Form 8-K were  filed for the three  months
                      ended April 30, 1998.

                                     - 16 -

<PAGE>

                                    SIGNATURE
                                -----------------

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.



NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
-------------------------------------------
               (Registrant)






/s/     J. Steven Keate
-------------------------------------
        J. Steven Keate
       Vice President and Controller
       (Principal Accounting Officer)


June 12, 1998

                                     - 17 -