Monday, 14 July 2014

Clarke to put Navistar up for sale?

Is it in the mind of Troy Clarke, chief executive officer of Navistar International Corporation to sell the company, once he has righted the storm-battered vessel?

One has to think so, going by statements he made to editorial staff of Transport Topics recently. But judge for yourself from reports of his comments which gave hints of a sell-off.

“The things we do to become successful as a North American stand-alone company would also make us a better partner,” Clarke said during the interview 9 July and published in the 14 July isue of Transport Topics.

He said there are a “half-dozen folks” who might be interested in purchasing a reinvigorated Navistar. This could imply a number of vehicle/engine manufacturers worldwide might be interested, Volkswagen AG of Germany, and Cummins Inc. of Columbus, Indiana being among them. In the event that Cummins acquired Navistar International, it could opt to close the Illinois-based OEM's engine plants as well as MWM in Brazil to guarantee increased in-house volumes as well as a future-secure captured market for its own diesel engines.

On the other hand, if the dice rolls in the favour of a Navistar International acquisition by Volkswagen AG then, on the basis the deal included Navistar's MWM diesel business in Brazil, not only would Volkswagen AG's heavy truck operations in the same country be assured of uninterrupted engine supply for its Constellation truck chassis, but VW itself would become more substantial than it is now in the world's truck stakes as it seeks to emulate rival Daimler AG.

It may be recalled that in February of this year Volkswagen made an offer for all outstanding Scania A and B shares. Volkswagen has invested steadily in Scania since 2000 and indirectly and directly holds a total of 89.2 per cent of the voting rights and 62.6 per cent of the capital of the Swedish commercial vehicles company.

However, with the current ownership structure, it is not possible to leverage the full potential of closer cooperation at an operational level between Volkswagen and Scania, as well as between MAN and Scania, due to the legal restrictions in place to protect Scania’s minority shareholders in Scania. 

It was for that reason that in February last VW made its planned full acquisition of Scania, aiming to remove the current obstacles to cooperation and permit major joint projects to be implemented more rapidly, thereby achieving additional growth opportunities and synergies.  In 2012, Volkswagen AG increased its share of voting rights in MAN SE to 75.03 per cent.

Meanwhile, Clarke told reporters from Transport Topics in his interview with them that he frequently fields calls from investment bankers, but for now there is no plan to change ownership.

But anyone brought in to turn round a company, as Clarke was nearly two years ago, must have a disposal consideration on his agenda.

During his term of office, Clarke has cut expenditure, reduced headcount, shuttered unnecessary divisions, made known his plans to close one of Navistar engine plants in Alabama, and streamlined purchasing and production.

Various agreements have been terminated, like joint ventures with India’s Mahindra & Mahindra Ltd. and Caterpillar Inc.

“We’ve been through 10 years of change in two years,” he admitted to Transport Topic reporters.

Clarke added that costs in 2013 had been cut by $330 million. His goal for 2014 was $175 million of more cuts, but now it could rise to $250 million.

Clarke’s remit: to change Navistar’s basic structure and return the company to profitability, though North American trucks and parts will remain at the core, and the company is still well-known for its school buses.  

During his interview with Transport Topics editors and reporters Clarke also made clear he and his managers still have more ground to cover. But to help matters, Navistar’s share price has recovered somewhat and Clarke expects growth in sales volume and market share at least throughout 2015.

When Clarke completes his restructuring — six-month net loss to 30 April 2014 was $545 million — the manufacturer might continue to stand alone or it could be purchased by another company, he said.

Navistar International’s demise began to unravel on former chief executive officer Daniel Ustian’s watch when a series of technology-related decisions prompted losses to multiply.

Clarke became Navistar CEO in April 2013; before that he was its chief operating officer since August 2012, when Ustian left the company suddenly.

Navistar nternational lost $898 million in its 2013 financial year, a much improved figure from the loss of $3.01billion in the 2012 financial year, Ustian’s last year.

Ustian famously signed off exhaust gas recirculation (EGR) echnology for the company’s diesel engines, since when Clarke has made every effort to regain lost ground by embracing selective catalytic reduction (SCR) even to the previously unheard of admission of going cap in hand to Cummins Inc. to keep Navistar’s Class 8 trucks, and others, rolling forward on the production lines and out into dealerships.

Clarke is aided by Jack Allen, chief operating officer, and Bill Kozek, North American truck president. The trio have the dual task of improving financial controls and truck quality, as well as sharpen up purchasing and supply.

“We had to reinvigorate quality,” Clarke said. “Now we’re making the best trucks we’ve ever made.”

Clarke admitted however, that the trio’s task is made somewhat easier by expansion in the North American truck market. Navistar is based in Lisle, Illinois.

“All indicators now are kind of pointing in the right direction. Good things are happening,” Clarke told reporters when speaking of demand for heavy- and medium-duty trucks.

Navistar’s US heavy-duty market share fell to 14.4 per cent in 2013, but during the first five months of 2014, it is up to 15.3 per cent.

But Clarke’s hard work continues: to make Navistar leaner and meaner.

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