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Springfield site seen as key to Navistar’s future

As company tries to rebound, local plant has increased its work.

Navistar’s Springfield plant will play a key role in the company’s future as the organization works to overcome a volatile recent history that included layoffs, changes in top management and the closure of a major manufacturing facility in Texas.

Despite those struggles company-wide, the Springfield facility has added employees and new work in recent years. Local union and company officials said they are also confident recent measures will help Springfield add new products and make the plant more competitive.

Overall, the company employs about 800 production and maintenance workers at the assembly plant, and as many as 1,300 workers overall on the company’s campus, said Jason Barlow, president of the United Auto Workers Local 402. That union represents many of Navistar’s local employees.

“As of right now, we’re in a pretty good position,” Barlow said. “We’re working on improving our quality, and we’ve got a committed workforce that’s working on that.”

The coming year will mean new contract negotiations between Navistar and the UAW, manufacturing changes to make the Springfield facility more efficient and a new product in Springfield as early as spring.

And 2014 is expected to be an important year for the company overall as it works to improve profitability and become more efficient. In September, the company announced plans to slash 500 jobs company-wide by the end of October, mostly focused on salaried and contract employees. Those cuts had a minimal effect in Springfield.

Since 2012, the company also has closed a manufacturing plant in Garland, Texas, hired a new CEO in Troy Clarke, and abandoned an engine technology for heavy duty trucks after it failed to meet emission standards set by the U.S. Environmental Protection Agency.

“They’ve got a lot of complete change at the top and streamlined,” said Vicki Bryan, a high-yield analyst with Gimme Credit who monitors the company. “And they’ve shut plants, they’ve laid off workers. It’s been very dramatic. Very volatile.”

Springfield’s facility has remained stable despite the company’s troubles overall. In the past, Springfield had primarily manufactured medium-duty trucks. But the closure of a facility in Texas meant Springfield and a plant in Escobedo, Mexico, were tasked with building all types of Navistar trucks.

“I think you can interpret the fact that we closed a major assembly plant in North America and brought some of that business to Springfield as an important endorsement of what Springfield means to us,” said Bill Osborne, senior vice president of global manufacturing and quality for Navistar.

The company is taking a number of steps to make the Springfield facility more competitive, Osborne said. Earlier this year, Navistar hired a new plant manager in Tony Alferio, as well as a new production manager and a new materials manager to bring new ideas to the local facility.

One of the company’s major initiatives will be what Osborne described as “lean manufacturing.”

That will involve management and workers in Springfield making their manufacturing processes and labor more efficient, driving excess inventory out of the system and making the workforce more productive.

“It requires a different kind of collaborative leadership,” Osborne said. “It’s the way we believe modern manufacturing facilities are run across North America.”

In addition to reviewing its manufacturing process, the company will begin producing its medium-duty DuraStar trucks with the Cummins ISB engine this year. That truck and and engine combination is produced at the facility in Mexico and will be introduced in Springfield with production beginning this spring.

“That’s a very important model for us,” Osborne said. “It’s one of our most popular models and should give the plant a pretty decent book of business going forward in the next couple years.”

The company invested as much as $17 million to help the Springfield facility pick up work from the facility that was closed in Texas. Additional investments to make Springfield more competitive are possible in the next year.

“We’re looking at making some investments, for example, in our paint shop,” Osborne said. “We just completed a new axle sub assembly line in the plant that we launched after the Thanksgiving shutdown.”

The company’s contract with the UAW expires in October, and negotiations typically begin in July. Recently, the length of contracts negotiated between the entities has varied from three to five years, Barlow said.

It’s not yet clear what issues either side will want to address in this round, but Barlow said the UAW is interested in having a guaranteed figure on the amount of work that will be provided locally.

“Right now we’re guaranteed only 50 trucks a day,” Barlow said. “Currently, we’re building 93 a day, but we always want to secure the current workforce that is working in the facility now.”

The company has asked for more flexibility from workers in previous negotiations, such as alternative work hours or work days. Barlow said it would only be speculation about what topics will be on the table this year.

Barlow said he is optimistic about working with Troy Clarke, Navistar’s new president and chief operating officer.

“We’ve personally met with him, and we feel he is willing to work with the UAW,” Barlow said.

Analysts have provided a wide range of views on the company’s chances for success. The demand for trucks is expected to increase next year, and a recent report from UBS Securities said Navistar is poised to benefit.

“We think (Navistar) is now better positioned to capture upside in 2014 and to start reporting more normalized results in 2015 than it was a couple years ago,” the UBS report this month states. The report also cites Navistar’s management changes since 2012, increased demand for trucks, and a shift in engine strategy for its favorable view of the company.

“That said, while we continue to recommend shares, we consider (Navistar) to be among the riskier names in our coverage universe,” the UBS report states.

A report from Zack’s Investment research gave shares of Navistar a neutral rating.

“We are worried about the mounting research and development expenses due to stringent government regulations,” the report from Zack’s states. “However, Navistar continues to be one of the leading players in the global truck market. As a result, we continue to recommend shares of Navistar as neutral.”

Navistar sells a product customers want, said Gimme Credit’s Bryan. The question is whether it can differentiate itself from competitors who are selling similar vehicles.

Osborne said Springfield, where Navistar once employed more than 7,000 people, will be a key to the company’s future profitability.

“Obviously we’re on a long journey to improve operations in Springfield, and it’s going to require a strong partnership between us and our UAW partners. And our message is we’re ready to roll up our sleeves and get things done at Springfield to make it a much more competitive facility over the long run,” Osborne said.

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