Behind
the news that Navistar International has had to endure a third quarter loss of
$247 million and the subsequent loss of 500 jobs, is the admission the company
is blaming much of the financial loss on its transition to the use of Selective
Catalytic Converters (SCR) for engines powering its medium and heavy duty trucks.
Navistar president and chief
executive officer Troy Clarke admitted: “This includes resizing our company to
match our current business environment.”
He added: "We still
face a few significant challenges, but we have laid the groundwork to solve
them, and obviously, we want to accelerate our rate of progress."
The company planned to be
profitable by the year’s end, though it had previously said it might take 18
months. The company now expects to be profitable in 2014.
Navistar’s heavy truck market
share in
the third quarter was 14 per cent, about the same as the first quarter but less
than the 21 per cent of 2011. The loss stems from its failure to build engines
that met 2010 federal emissions standards.
To counter this, it will be
recalled that Navistar’s North American truck operations last year switched
from using only exhaust gas recirculation (EGR) for emissions control to SCR
engines from Cummins Inc. The company’s former chairman favoured remaining with
EGR and not adopting SCR.
Significant
More significantly, perhaps, Clarke also revealed that the
6.7-litre Cummins ISB will be used to power the first Class 6 and Class 7
DuraStars later this month, with the Lisle, Illinois, truck maker ramping up to
full production in December. Full production for Navistar’s CE school buses
with the same engines is scheduled for January 2014, according to the company.
Behind this revelation is
an important implication. Navistar seems about to drop its own in-house
7.6-litre DT466 engine which has proved such an important company workhorse for
many years.
This raises the question: Did
Navistar executives ever consider asking their counterparts at Cummins Inc. if
it was possible to apply the same (or similar) SCR technology to the DT466 as
they applied to the MaxxForce 11 and MaxxForce 13 engines originally derived
from MAN in Germany? Incidently, surely that must have been the first time in Cummins's history that it has supplied auxilary automotive equipment (e.g. SCR technology) to a rival engine maker, with the exception of course of Holset turbochargers.
In the event that they did
ask the question, the response from Cummins might be that the DT466 is such an
old design of engine that the full benefits of adopting SCR technology could
not be achieved. In other words, buddy, it's not worth doing.
They (Cummins) might also have
suggested that a present-day 6.7-litre I6 diesel engine is more than capable of
developing the power and torque as an 7.6-litre engine of yesteryear, with the
rider that the 6.7-litre is not only lighter (therefore better payload
capability) but better able to offer improved fuel economy and vehicle
emissions.
It goes without saying that
the Cummins executives, had they been asked such questions, would much prefer
to sell Navistar International their own 6.7-litre engine than ‘tinker about’
with a customer's aged DT466 which would never be able to match the fuel
efficiency of their 6.7-litre. The ‘tinkering’ would in any event not be an
overnight solution whereas supplying a proven and modern 6.7-litre engine would offer a faster route to market (and profitability) for Navistar.
Navstar has not stated
where the job losses will fall. It might be assumed that both Melrose Park and
Huntsville could both be hit. Likewise staff people globally as well as long-term contractors are affcted to make the savings necessary. The job shedding should be complete by end of October. Whatever, it looks as though the DT466 has been ‘shown
the door’.
As they mulled the best future
prospects for their business, Navistar executives, as they sat round their boardroom
table discussing the finer details of their change in strategy, will have been
mindful that now is perhaps the most opportune time to cut their losses with
respect the DT466 and move on.
Can
of worms
Whatever, Troy Clarke has found himself with a whole can
of worms. One by one he is plucking them out of the can and finding an
alternative solution.
The next bullet Clarke has
to bite is that of engine manufacture; specifically, which plant, if any, to
close.
"We have a handful of
different alternatives that we can act on fairly quickly to consolidate engine manufacturing
into a fewer manufacturing facilities than we have today. We fully expect to be
able to act on that in 2014," Clarke said.
Navistar
has two engine plants in Huntsville, Alabama, and one in Melrose Park, Illinois
which also the site of its engineering base. One of the plants in Huntsville
was opened to build a 15-litre engine the company decided last year to cut from
production. Navistar now purchases 15-litre ISX engines from Cummins.
According to Clarke, consolidation of engine production is a
more difficult decision than the company’s move to consolidate truck production.
Melrose Park produces engines for medium duty trucks including the DT466, the history
of which dates back to International Harvester.
Navistar's market share in
the medium-duty truck sector has declined to 24 per cent from 26 in the second
quarter, so an engine change is seen as vital to stem the loss as well as the
DT466 being seen as well past its ’sell by’ date. The DT466 was one of the
first engines to adopt Caterpillar’s HEUI fuelling system
Meanwhile, not for the
first time, the rest of the North American truck- and engine-making industry
will be watching developments at Lisle with more than passing interest. If
Clarke can nudge Titanic off course in time and find a new, safer route to
prosperity he will receive the grateful thanks of more than just the shareholders. ∎
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