Navistar to Use Cummins’ SCR to Comply With EPA Emissions

This story appears in the Aug. 6 print edition of Transport Topics.

Truck and engine manufacturer Navistar International Corp., pressed to find a way to offer engines that comply with federal emissions regulations, said last week that it has reached an agreement to use Cummins Inc. selective catalytic reduction technology for its 13-liter engines and offer Cummins 15-liter engines in some of its International brand trucks.

The Lisle, Ill., manufacturer also said it was withdrawing its fiscal 2012 guidance and was being investigated by the U.S. Securities and Exchange Commission over “ac-counting and disclosure matters.”

Company spokesman Steve Schrier told Transport Topics on Aug. 2 that the company plans to introduce the Cummins ISX15 engine to its North American truck lineup in January.

Navistar said the use of Cummins’ selective catalytic reduction system in its existing MaxxForce engines will accelerate delivery of Navistar’s previously announced next-generation engine technology, dubbed In-Cylinder Technology Plus (7-16, p. 1).

Until its July announcement, Navistar had maintained that its engines would hit required emissions levels using only exhaust gas recirculation (EGR), rather than the SCR technology, which requires injecting a urea solution known as diesel exhaust fluid (DEF) into the exhaust stream. All Navistar’s competitors have used SCR to meet the 2010 emissions requirements set by the Environmental Protection Agency.

However, Navistar has yet to obtain EPA certification for its EGR engines without also using emissions credits it earned in earlier years for engines that exceeded the federal emissions rules at that time.

While Navistar’s competitors all turned to SCR, Navistar officials had believed they could meet the tightened rules with only EGR. They have apparently now abandoned that approach.

Navistar had for many years utilized Cummins engines in some of its trucks, but the companies had an acrimonious split when Cummins abandoned EGR for SCR in order to meet the ever-tightening federal emissions standards.

The Cummins change came after Navistar was already well into the design phase of its 2010 models, and Navistar officials were furious.

Last week, Navistar said it now plans to introduce the SCR technology in its 13-liter MaxxForce engine in early 2013. It said adding SCR to the engines will enable Navistar to meet EPA’s emissions regulations and position the company to meet federal greenhouse gas rules in advance of the 2014 and 2017 requirements the agency already has outlined.

“The actions announced today establish a clear path forward for Navistar and position the company to deliver a differentiated product to our customers and provide a platform for generating profitable growth,” said Daniel Ustian, Navistar’s chairman and CEO.

Cummins Inc., Columbus, Ind., issued a statement saying only that it signed a memorandum of understanding on the engines and aftertreatment systems with Navistar.

The memorandum “signifies our intent to negotiate a supply agreement” but is not considered final until all details are agreed upon, Cummins said. Analyst Ann Duignan, writing to clients of J.P. Morgan Securities, said she viewed Navistar’s engine announcement as positive, “though we wonder how Navistar will make money without raising its truck prices significantly, potentially forfeiting market share.”

Also on Aug. 2, Navistar said it will provide an updated full-year financial outlook after reporting its third-quarter results in September.

For the fiscal third quarter ended July 31, Navistar said it expects a pretax loss of between $105 million and $145 million. Engineering costs and compliance penalties will account for $25 million to $30 million of the loss, the company said.

Regarding the SEC investigation, Navistar said only that it had received a formal letter of inquiry and was cooperating fully with the request.

Also in its statement, Navistar said it has secured a $1 billion loan to improve its financial flexibility.

Duignan wrote that the loan removes the risk of a near-term liquidity problem, but also adds to the company’s debt, which “places heightened pressure on management to execute flawlessly from here.”

Through the first half of 2012, Navistar’s International trucks are the second-most-popular heavy-duty brand, with 19% of market share, behind Freightliner, with 31.3%, according to U.S. retail truck sales data from WardsAuto.com. The two brands of Paccar Inc. — Kenworth Trucks and Peterbilt Motors — collectively control 29.1% of the market, while Volvo Group’s two brands, Volvo and Mack, make up 19.4% of sales.