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Local Navistar plant gears up for growth, competition

Company’s troubles nationally create opportunity in Springfield.

Through Navistar International’s year of turmoil — struggles with federal engine mandates, feisty investors and floundering cash flow — the Springfield plant has shined.

But now Springfield has to combat Navistar’s other North American plants for what remains of the company’s product work and investments to survive.

This month, Navistar announced a loss of more than $2.9 billion for the year ending Oct. 31. In the year, Navistar’s only profit was in the third quarter — a net income gain of $83 million.

The company reported losses of $153 million and $172 million in the first and second quarters of the year, respectively.

“They’ve fallen on hard times financially,” said Jason Barlow, president of United Auto Workers Local 402, which represents many of Springfield’s Navistar workers. He said some of it stems from major investments on a new world headquarters and expansion into other markets in India and China.

“And they didn’t concentrate on building their bases in the North American truck market, and as far as engines go they lost over $700 million” in developing its own engine, Barlow said.

Navistar has cut its operations in India and will cut its plant in Garland, Texas, by summer 2013. That work will be dispersed between Springfield and Escobedo, Mexico.

But while Barlow is optimistic about the increase in production locally, he said the key to knowing if the progress will continue is to see if Navistar invests in the Springfield plant.

“We’re optimistic for the future in Springfield but also cautious,” Barlow said. “We know the Alabama plant is still there, and if we see no sign investment here in Springfield, there’s a possibility they may go to Alabama.”

Barlow said Navistar and the state are working together to discuss future investment, but that it’s in limbo because other states have also made offers to Navistar — in Oklahoma where Navistar builds buses and Alabama where Navistar builds engines.

Springfield needs the investment to help maintain the facility.

“The Springfield plant for years has not been maintained,” Barlow said. “Corporately and locally, they decided to cut costs and didn’t put investment into it. The facility needs a significant amount of money to upgrade the line support they have right now.”

Barlow said he did not have specific dollar estimate.

The Springfield plant has grown from an all-time low of fewer than 300 workers in late 2010, to nearly 900 employees now. In December, the company hired nearly 30 full-time workers and may hire more as production increases in 2013.

Navistar must juggle any potential investments with cuts made elsewhere in the business to save money as investors and analysts speculate whether it can survive.

Senior high yield analyst Vicki Bryan, who has covered Navistar extensively for research firm Gimme Credit, has remained consistently doubtful of the company’s ability to turn around.

The fourth quarter “outlook keeps Navistar perilously close to bankruptcy unless it can free up more lending capacity — which skittish bankers may not approve,” said Bryan in a report last week following Navistar’s quarterly report. “Failing that, the success of further stock and assets sales is less certain and may not generate enough cash to sustain operations over the next year.”

To help staunch some of the cash loss and save money, Navistar has made an effort to cut spending, minimize contractors and reduce the workforce.

Already, Navistar cut more than 700 corporate level jobs through buyouts and layoffs. The company has also begun shutting down plants.

“We are getting out of our truck and engine sector with Mahindra (Commercial Utility Vehicles) of India,” said Steve Schrier, Navistar spokesman. “We anticipate $33 million savings. That’s another one of those things we were looking at, are we getting proper return on investment?”

Navistar will also save money by having Springfield take on the production from the Garland, Texas, plant.

“That’s the model for both Springfield and Escobedo,” Schrier said. “They both currently build every truck we have … we believe in flexible manufacturing and we continue to approach it that way.”

Schrier said he could not disclose how much of that work is going to Springfield.

But some of the work has already trickled in to the local plant, with a major increase in production expected in January and February.

“Each month they’re transitioning different lines and models in, but the official larger increases won’t be until January or February time frame,” Barlow said.

The company remains confident it will be able to return to profitability in 2013.

New CEO Lewis Campbell has repeatedly stated the intention to become profitable again, roll out new, EPA compliant engines and return to core business sectors in 2013.

Schrier said reported losses reflect the difference between historical data and what was projected, and it does not reflect the true cash value of a company.

The future “is still bright and we’re making the right transition,” Schrier said. “We did end the quarter with $1.5 billion in cash, in manufacturing cash. We have the cash to weather our transition and continue on the progress we’re making.”

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