Navistar must solve the trust equation

There is no question this has been a time of uncertainty for Navistar. From the time the company made the decision to forgo selective catalytic reduction (SCR) technology to meet 2010 EPA emissions regulations in favor an advanced exhaust gas recirculation (EGR) solution, each decision that followed was predicated on the ones before.

Ultimately, that led to the sudden retirement of Daniel C. Ustian, chairman, president & CEO, on Monday and the naming of Lewis B. Campbell, former chairman, president & CEO of Textron, as his replacement on an interim basis.

Along the way, there have been a number of bumps in the road, including quality concerns about the EGR-only MaxxForce engines. From the start, competitors said there was no way Navistar could meet the 0.2 NOx g/bhp-hr. level without adding SCR. Until the end, Navistar officials remained convinced their EGR-only solution would work had there been enough time, but with credits running short and initial plans by the EPA to allow the company to pay non-conformance penalties of up to $2,000 per engine scuttled by the courts, the company had little choice but to make the switch to SCR – a solution it is calling in-cylinder technology plus (ICT+).

EPA has since filed a new rule on non-conformance penalties (NCPs) with the White House Office of Management & Budget for review, but details have not been released.

So in the end, Navistar chose the same path all its competitors embarked on several years ago by installing aftertreatment systems from Cummins as well as offering Cummins’ 15L engine in its Prostar + starting in January. Navistar hopes to have its MaxxForce 13L certified by May.

Presumably, the addition of SCR to its MaxxForce line along with the Cummins engine option starting in January should get the equipment side of the ledger back in order for Navistar.

But what about the brand? For as much as Navistar can fix the engine issues it was having (the company’s second-quarter earnings statement reflected a $104 million loss related to pre-existing warranty charges on engines meeting 2010 emissions), if customers don’t hold the same level of trust in the name Navistar, the ability to meet 2010 emissions regulations will have little impact on sales.

How many current customers have been so turned off by the EGR-only engines that they won’t return to Navistar? What about residual values for these vehicles? Can these fleets that have them recoup the value they thought they would achieve when they made the purchasing decision? Time will tell on these questions.

History is littered with brands that produced quality products that never sold. Surely, Navistar does not believe that will happen to it. Officials believe Navistar’s overall market share for the fiscal third quarter will remain flat at 17-18% in Class 8 at 17-18%; 35-36% in Class 6-7; and 48-49% in school bus.

That would be terrific news for Navistar if that were to happen given all the uncertainty of the past couple of years combined with the announcement of the switch to SCR.

Navistar has solved its engine-compliance issues and it’s brought in a new leader in Campbell. Now it’s time for the company to focus on the one area that will ultimately determine its success – rebuilding trust among its customers.

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