Thursday, 18 December 2014
. . . As Troy Clarke shutters Indianapolis foundry
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.