Navistar's MaxxForce engines for its International medium-duty trucks will incorporate Cummins SCR aftertreatment technology starting next year
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Navistar to add Cummins SCR systems to its medium-duty MaxxForce engines next year

June 11, 2013
OEM also reports net loss of $374 million for second quarter

Navistar International Corp. has revealed that it will use SCR emissions-aftertreatment systems supplied by Cummins Emissions Solutions on its MaxxForce engines that power its International medium-duty trucks, starting in the first quarter of calendar year 2014.

The SCR announcement was included in the truck and engine maker’s release on its Q2 earnings. The company noted that it was “turning its focus” to adding SCR to its medium-duty products as its “heavy-duty launches [are] essentially completed.”

“We will introduce SCR in our medium-duty engines at the beginning of calendar year 2014, and we selected Cummins as our aftertreatment supplier,” said Navistar executive vp & COO Jack Allen yesterday, in a conference call with analysts on the earnings report. “For the past nine months, our engineering efforts have centered on adding SCR to our big bore engines. And now, this effort shifts to medium duty. And we're going to move as quickly as possible, but we won't compromise any of the quality gains we've made. And with this plan, we expect to avoid NCPs [Non-Conformance Penalties]on medium-duty engines, and it's likely we'll even have [emission-compliance] credits left over.”

As for its financial performance, the company reported a Q2 2013 net loss of $374 million, or $4.65 per diluted share, compared to a Q2 2012 net loss of $172 million, or $2.50 per diluted share. Excluding discontinued operations, Navistar recorded a Q2 2013 loss from continuing operations of $353 million, or $4.39 per diluted share, compared to a Q2 2012 loss from continuing operations of $138 million, or $2.01 per diluted share.

According to the OEM, the year-over-year decline was “mainly due to lower volumes and higher pre-existing warranty adjustments of $164 million in the second quarter 2013, primarily related to EPA 2010 emissions level engines.” Navistar said the year-over-year drop was “partially offset by $60 million in lower SG&A [Selling, General and Administrative Expenses] expenses and $32 million in reduced engineering and product development costs this quarter versus the same period one year ago.”

The company added that manufacturing revenue in the quarter was $2.5 billion-- down 23% from the second quarter of 2012. “The decline reflects a 14% drop in overall industry demand and lower market share during the company's emissions strategy transition,” Navistar noted. “This was partially offset by stronger volumes in the South America engine business.”

"We are not satisfied with our overall financial results this quarter, but we are pleased with the continued progress we made in a number of areas on our turnaround plan," stated Troy Clarke, Navistar’s president & CEO.

"We still face some significant, yet solvable challenges, primarily in the areas of higher pre-existing warranty costs for our earlier EPA 2010 emissions level engines, as well as in rebuilding sales and restoring market share,” he continued. “However, we are already implementing the right leadership and business process changes to effectively address these priority issues."

Regarding that point, the earnings release noted that the company recently announced the hiring of Bill Kozek, who previously had served as general manager of rival OEM Peterbilt Motors, to run its North America Truck & Parts group, and the naming of Bill Osborne, who spent more than 20 years in the automotive industry before joining Navistar in 2011, to head up global quality.

As for the warranty issue, in the analyst call, Allen said that the OEM had “a handful of the EGR-related quality issues with our 2010 engine launches that resulted in higher-than-anticipated warranty expenses, and we're fixing them. We launched a field campaign earlier this year. We thought it would take about 18 months to complete. But customers told us, we needed to move faster, and it was impacting our ability to sell trucks.

“So we refocused our plan and put more resources on it, and we accelerated our response,” he continued. “And now five months into the process, the EGR valve campaign is more than 68% complete. We focused on getting this done, and we anticipate it will be largely behind us by the end of the summer.

Clarke also stated that Navistar had “delivered on a number of our near-term priorities this quarter. We exceeded our cash guidance, continued to over-achieve on our structural cost reduction efforts, and obtained regulatory approval for our MaxxForce 13-liter engine with SCR, which we launched on time in our ProStar truck the last week of April.

"We were also pleased with our ongoing progress in shedding non-core assets that are not providing adequate returns on investment,” he continued."In the second quarter Navistar completed the sale of its equity interests in its India truck and engine joint ventures; completed the sale of its Workhorse Custom Chassis brand; and subleased a portion of its Cherokee, AL, manufacturing facility to a railcar manufacturing company. Already in the third quarter, the company has sold its RV business.

Turning back to product, Allen remarked the OEM’s new SCR-based heavy-duty models are the “highest quality trucks we have built in more than a decade and they have improved fuel economy, a combination that positions us to hit our previously stated goal of stronger sales and increasing market share during the second half of 2013 and into 2014. We are off to a strong start as May orders were up 38% versus the average sales rate for the previous quarter, driven higher by strong interest in the MaxxForce 13-liter with SCR and the ProStar ISX.”

In the conference call, Allen said that “Back in 2009, Navistar Class 8 market share was in the mid-20s,” noting that at that time the OEM’s main heavy-duty product was the ProStar with the Cummins ISX and Navistar’s 13-liter. “Our share bottomed out in first quarter of this year at 14%, and we finished Q2 with 15%. So clearly, we have work to do, but we're headed in the right direction.“

Also during the conference call, Clarke emphasized that Navistar has “a solid plan. One we've consistently said will take us 12 to 18 months to execute. I believe this quarter's performance reflects continued progress on our near-term priorities, while pointing out that we still face a few significant yet solvable challenges.”

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