An industry-wide surplus of used trucks in the U.S. is driving down the “price gap” between domestic and export valuations, which is spurring Navistar to shift sales of its bulging 7,000 unit inventory of trucks equipped with its discontinued MaxxForce 13-liter exhaust gas recirculation (EGR) only engine overseas.
In a conference call to discuss the truck and engine maker’s second quarter earnings, Troy Clarke, Navistar chairman, president and CEO, said that “This is taking important step to put this legacy issue behind us … as legacy issues are masking our underlying improvement in results.”
He added that if Navistar didn’t take advantage of the pricing equivalency now occurring in the export market – “and it is a hot market for us,” Clarke stressed – that 7,000 truck inventory would be with the company thru 2020 and beyond.
“By this time next year, you’ll not hear us talking about this,” he stressed. “The pace of trade-ins [for legacy equipment] is exactly as anticipated. We’re past the 75% point and are now grinding through the balance. We’re going to take this drag on our earnings and put it behind us.”
Walter Borst, executive vice president and CFO for Navistar, added that the $60 million charge the OEM took in the second quarter to beef up its “reserve” to cover those old MaxxForce trucks is action being taken “to eliminate the need to future reserve additions and to clear the way to eliminate the rest [of them] by end of 2018.”
Borst added that if Navistar didn’t have to make that $60 million reserve allocation, its truck segment would have been profitable and the company’s overall results would have been closer to break even.
“Values in export market are typically lower than what we achieve domestically, but in the past few years there’s been pressure on used truck prices for all brands, so that price gap narrowed,” he explained.
“As result made decision to shift from domestic [used truck sales] to more aggressively pursue export opportunities,” Borst noted. “It will accelerate the velocity of [used truck] sales, drive [used truck] inventory lower, and make it easier for dealers and customers to sell their [used] MaxxForce trucks in the U.S. market. We believe our legacy EGR issues coming to an end.”