Navistar May Close Plants, New CEO Campell Says
By Transport Topics Staff
This story appears in the Oct. 8 print edition of Transport Topics.
Navistar International Corp. is considering possible plant closures as new CEO Lewis Campbell looks to cut costs and restore profitability at the struggling truck maker.
Campbell last week said in an interview with the Reuters news service that Navistar has already identified steps to cut costs by as much as $175 million annually and improve profit by $52 million. Navistar spokeswoman Karen Denning confirmed the accuracy of the report, which also noted the company’s plans to cut 800 non-manufacturing jobs, or about 4% of its work force.
“We are now looking at what are the range of industry volumes that could come to us over time and what is the right footprint?” Campbell said in the interview, which Reuters said was the first he has given since taking over late in August.
“More than likely we will have to adjust our footprint,” he added. “And we are ready to do that.”
However, the report didn’t give any specifics about steps that could be taken at Navistar’s 18 plants in North America to lower costs. Campbell did say Navistar plans to cut engineering spending by 28%.
Asked how soon decisions would be made about specific cost-cutting measures, Denning said “weeks or months.”
Navistar, based in Lisle, Ill., installed Campbell as CEO after the abrupt departure of Daniel Ustian (9-3, p. 1). As the former Textron CEO took over, Navistar was in the early stages of backing away from its embrace of exhaust gas recirculation, or EGR emissions control technology, after failing to win federal approval of its 13-liter engine.
That shift forced Navistar to reestablish commercial ties with Cummins and shift to the selective catalytic reduction emissions technology used by every other original equipment manufacturer.
The working agreement with Cummins, which still hasn’t been finalized, opened the door for Navistar to offer a 15-liter ProStar tractor with Cummins’ ISX engine, which is expected to be available around year-end. Navistar is developing its own 13-liter engine using SCR with the goal of having that power plant on the market in the spring.
Through the first three quarters of its fiscal year, Navistar has lost $241 million, compared with a $1.47 billion profit in the prior year. A $196 million income tax benefit in the third quarter of 2012 made this year’s loss figures look better.
Bloomberg News’ estimate for Navistar’s fourth quarter projects a loss of another $50 million.
Revenue in the most recent quarter sank below the same period of 2011 as the company’s sales of Class 8 trucks declined. At the same time, Navistar was saddled with non-compliance penalties in some states where its trucks didn’t meet emissions standards.
The road back to profitability became steeper after the Environmental Protection Agency doubled those non-compliance penalties last month.
Campbell’s comments elaborated on the company’s commentary when its fiscal third-quarter results were announced on Sept. 6. At that time, he said that all of the company’s operations were under review (9-10, p. 5).
The cost-cutting steps do not include any plans to sell its military business, which accounts for about 10% of revenue, Campbell said.
The company already has identified activities that generate $260 million in revenue that could result in the annual savings if those operations were closed, sold or discontinued, Campbell told Reuters.
The company already has announced it is moving to close its Workhorse chassis subsidiary.
