Navistar
International’s chief executive officer, Troy Clarke, continues to comb through
the beleaguered company’s business in search of any area where he can cut
costs. And his latest move brings no Christmas cheer for some employees.
In his search he has seized on Navistar’s Indianapolis
foundry that makes engine components. He intends to close the plant next year.
The Lisle, Illinois heavy duty truck and engine maker
casts engine blocks and cylinder heads at the plant but will outsource its
production once the facility closes. These could come from Tupy SA in Brazil or
Mexico.
Navistar expects to cease all operations by summer,
resulting in the loss of 180 jobs and a $13 million reduction in its annual
operating expenses.
For many years the Indianapolis foundry produced engine
castings for Navistar-built engines supplied to Ford Motor Company. The company shuttered the
foundry in 2009 when Ford elected to build its own and new EcoBoost diesel
engines for its heavy-duty F-series trucks following a bitter dispute with
Navistar over the quality of the engines Navistar was building for Ford. This
spat caused Ford to start the manufacture of the 6.7-litre EcoBoost V8 diesel engines
at its Chihuahua, Mexico engine plant. These engines use compacted graphite
iron (CGI) as the cylinder block material.
Navistar restarted production at the Indianapolis foundry
in 2011. It devised extensive plans on the assumption that it would need more casting
capacity for its 13-litre and 15-litre engines. But when Navistar was unable to
comply with tougher federal standards for engine exhaust, the company laid
aside plans for the 15-litre engine. Moreover, its 13-litre engine was beset by
reliability problems.
In a grovelling move to save the company’s face, Clarke offered
his customers vehicles with 15-litre engines manufactured by Cummins Inc. Navistar continues to build 13-litre
engines, albeit at lower volumes than originally anticipated.
The company further reduced its need for engine castings
last year when it offered Cummins’ engines on Navistar’s medium-duty trucks and
school buses. Navistar closed an engine plant in Huntsville, Alabama earlier
this year as part of Clarke’s consolidation plan of its smaller engine line-up.
Following closure of the Indianapolis foundry, Navistar
said it will rely on outside suppliers to provide engine blocks and heads, but
gave no hint as to their identity or location. Navistar continues to operate a
foundry near Milwaukee for other truck components.
Interestingly, it is thought the foundry in Indianapolis
forms part of PurePOWER Technologies
Metalcastings Group, a business described by Navistar as a world class caster
of multi-ferrous metals; one that is “recognized for high-quality castings and
reliable service”. PurePOWER Technologies Metalcastings Group has two locations
in Waukesha, Wisconsin and Indianapolis, Indiana.
As
to the Indianapolis foundry, Persio Lisboa, the company’s president of
operations, said in a statement: “We’re determined that leveraging our
suppliers for these components will reduce our engine costs, improve our
overall manufacturing capacity utilization, and free up additional resources to
invest in our core North America truck and parts business.”
Cost-cutting is working
Meanwhile,
Clarke’s measures appear to be working as Navistar International has just reported a
smaller loss for its fiscal fourth quarter, citing improved truck sales and
lower warranty costs. He has halved the fourth quarter’s losses.
The company, which makes International brand trucks
and MaxxForce engines, reported a loss of $72 million, compared with a loss of
$154 million in the same period last year.
Revenue for the quarter ended 31 October grew to
$3.01 billion, from $2.75 billion a year ago, according to Navistar.
The company said truck “charge-outs” for the
quarter rose 23 per cent from a year ago, while its order backlog increased 24
per cent.
For the full financial year, Navistar posted a loss
of $619 million compared with a loss of $898 million in 2013. Full-year revenue
moved up a touch to $10.81 billion from $10.78 billion. The increase, although
very modest, nevertheless was an increase.
“Our fourth quarter results — and the results for
the entire fiscal year — reflect our continued progress improving business
operations across the enterprise and positive trends in the North American
industry,” said Clarke. “In 2014, we increased our production, charge-outs and
order backlog; continued to reduce warranty spend; and achieved structural cost
savings that further lowered our break-even point.”
Meanwhile, Navistar’s Indianapolis foundry, which
has managed to sidestep closure plans in the past, is now earmarked for a shutdown
again but this time no reprieve is in sight.
Significantly, Clarke’s closure of the Indianapolis
foundry on the city’s Eastside, undercuts a city rescue plan that used tax incentives
to try to keep the plant open.
However, Lisboa noted, putting on a brave face, that shutting the foundry “is
a difficult decision because of its impact on the many great people who've been
part of our company.”
He claimed that Navistar had calculated “that
leveraging our suppliers for these components will reduce our engine costs,
improve our overall manufacturing capacity utilization, and free up additional
resources to invest in our core North America truck and parts business.”
The foundry dates to the 1930s. It was once part of
a complex that included a diesel engine plant and employed nearly 2,000 people
in the 1990s. As mentioned, Navistar, previously known as International
Harvester, shuttered the engine plant in 2009.
Cut
in pay and benefits
Greg
Essex, president of the United Auto Workers' Local 226, which represents union
workers at the plant, is reported as saying that his members agreed to a 40 per
cent cut in pay and benefits in 2010 in an attempt to save the plant. He blamed
Navistar for not putting knowledgeable managers in charge of the plant, which
he said has been plagued by high rates of parts needing reworking.
“We’ve done our part as a workforce and they
(management) failed us,” Essex is reported as saying. “It’s been a gold mine
run as a coal mine. That’s where management failed us.”
“This has been a sad day for Indianapolis to leave
this 60-acre lot sitting empty,” he added.
Essex has hopes the UAW can help find a buyer for
the foundry to keep it open, but secretly probably expects a nil return.
Lisboa, in supporting his boss Clarke, has said
closing is part of a two-year effort to “strengthen our business and position
the company for a return to profitability and long-term success.”
A 2010 plan to close the plant was reversed when
UAW workers accepted a cut in pay, from $25 to $17 per hour, and the plant was
put under control of a Navistar engine parts venture, Pure Power Technologies,
LLC.
Under an economic development agreement with the
city in 2011, Navistar agreed to spend $19 million to upgrade the plant with
new casting equipment over three years, while increasing employment to 250. In
return, the company would save $897,712 in property taxes over seven years.
But Essex has said no new UAW workers have been
added to the workforce over the past three years, as bitterness creeps into his voice.
“The only people we hired are to replace people who
quit or retired,” he is reported as saying.
As for spending money to upgrade the plant, Essex
claimed Navistar has “spent millions of dollars to upgrade the plant in recent
years, but it’s been hit or miss, a little bit here, a little bit there.”
The old engine plant most recently assembled
diesels for Ford pickup trucks from 1982 through 2008, but after a price
dispute, Ford shifted production to its Chihuahua Engine Plant in Mexico.
New CGI technology
It was on 25 January 2012, that Pure Power Technologies, LLC announced
it had introduced new technology that enabled it to begin production of CGI
cylinder blocks at its Indianapolis, Indiana casting facility. The heavy-duty
CGI cylinder blocks are produced using the SinterCast process control
technology. The foundry was located at 5565 Brookville Road, Indianapolis.
The SinterCast System 3000 process
control system has been configured at the Pure Power Technologies Indianapolis
casting facility to provide SinterCast’s measure-and-correct feed forward
control of the CGI production process, along with automated feedback control of
the base treatment. The System 3000 also logged data from the melting, moulding
and shake-out operations to provide enhanced quality control and traceability
of the casting process.
The technology agreement between Pure
Power Technologies and SinterCast encompassed the Pure Power Technologies
casting facilities in Indianapolis, Indana and Waukesha, Wisconsin. Pure Power
Technologies reserved the right to install additional SinterCast control
systems on the two casting lines in Waukesha.
Together, the Pure Power Technologies
casting facilities in Indianapolis and Waukesha provided sufficient capability
for high volume CGI production for passenger vehicle applications and for
commercial vehicle cylinder blocks and heads with engine displacements as large
as 15 litres.
“Building on more than 10 years of CGI
product development and production experience within Navistar, Pure Power
Technologies has the experience, the facilities and the team to be a world-class
provider of high quality CGI engine components to the passenger vehicle and
commercial vehicle industries” said Rick Bacon, director, Pure Power
Technologies Metalcastings at the time, “We have brought the Indianapolis
casting facility on-stream in record time to meet the increased demand for
heavy-duty CGI blocks. We now look forward to bringing our CGI design and
manufacturing experience to OEMs around the world as demand grows for CGI head
and block casting technology using SinterCast process technology.”
Founded in 2009 by Navistar International
Corporation, the company stated at the time that Pure Power Technologies, LLC “vertically
integrates research and development, engineering and manufacturing capabilities
to produce world-class diesel power systems and advanced emissions control
solutions for breakthrough engine performance and cleaner running vehicles and
equipment. Pure Power Technologies operates R&D centres in Columbia, South Carolina,
and Bowling Green, Kentucky, with manufacturing facilities in Blythewood, South
Carolina and iron foundries in Indianapolis, Indiana and Waukesha, Wisconsin.
The company also makes piezo diesel engine fuel injection equipment following its
acquisition of technology from Siemens in Germany.
The foundry at 5565 Brookville Road,
Indianapolis is the same foundry which closes next year. And quite what happens
to the SinterCast process technology on the site remains to be seen.
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