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Navistar orders up, but analyst questions future

About 900 people work at Springfield assembly plant.

Navistar secured the most orders on medium and heavy duty trucks that it has seen in almost two years, but at least one analyst who tracks the company raised concerns that the trend may not be sustainable.

Navistar International Corp. disclosed this week that it had secured about 5,900 orders for its medium and heavy duty trucks. The company, which employs about 900 people at its Springfield plant, assembles heavy and medium duty trucks at its facilities in Springfield and Escobedo, Mexico. It marked the company’s largest number of orders since December 2011.

The new trucks will be built at both facilities, although its not clear how the work will be split, said Steve Schrier, a spokesman for Navistar. It’s too early to tell what the surge in orders will mean for the company, but Schrier said the company is working to become more efficient and improve its profits after recent struggles that included an attempt to develop its own engine technology that failed to meet carbon emission standards.

“It’s part of our turnaround plan, and market share is really the next important step in our turnaround,” Schrier said.

The orders were roughly split equally between medium and heavy duty trucks. Officials from the United Auto Workers Local 402, which represents many of Springfield’s Navistar workers, could not be reached for comment.

“It just means we got a good month of orders in September,” Schrier said.

The increase in orders provided a bit of good news for the company, which announced just last month that it was planning to cut 500 jobs company-wide after a disappointing earnings report. In September, the company had reported losses for the fourth straight quarter and announced as many as 500 jobs would be slashed by the end of October, mostly salaried and contract employees. Those cuts were expected to have a minimal impact on operations in Springfield.

But Vicki Bryan, a high-yield analyst with Gimme Credit who has followed the company, provided a more skeptical analysis.

“While we are encouraged at the surge in Navistar’s orders, albeit versus a low base, we remained concerned that this may not translate into sustainable sales trends over the near term,” Bryan said.

She said the orders for trucks equipped with Navistar’s own engines were overshadowed by customer preferences for truck equipped with engines built by its competitor Cummins.

“We suspect the jump in orders may have been achieved via special promotional pricing with continued heavy discounting and incentives necessary to win over customers, which doesn’t cover Navistar’s prohibitively high costs and keeps intense pressure on liquidity,” Bryan said.

Earlier this month, Navistar also announced plans to raise about $200 million through a private offering of bond notes, along with $270 million in borrowing from a company financing subsidiary that can be used to reinvest in the company, including paying down debt, Schrier said.

However, if the heavy and medium duty trucking industry continues to improve in the next few years, it could help Navistar in the long run, said Ken Kramer, who follows the trucking industry for Global Insight, an economic forecasting and consulting firm.

The housing and construction markets are expected to improve in the next two years, which should benefit the trucking industry as a whole, Kramer said. If that’s the case, he said Navistar could improve its share of the market.

“I think the overall market looks good, which bodes pretty well for Navistar,” Kramer said.

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