Navistar Engine Timeline
2001: The Environmental Protection Agency enacts a rule requiring a 95 percent reduction in the emissions of nitrogen oxide from heavy duty diesel engines. Manufacturers have until 2010 to comply.
2010: Navistar’s engines, created using an EPA patented process, still do not meet requirements, so it uses banked emissions credits to buy more time.
January 2012: After Navistar predicts it will run out of credits, the EPA passes a rule to permit noncompliant manufacturers to pay a penalty in exchange for the right to sell noncompliant engines.
May-June 2012: A group of competitors sue the EPA, arguing that the fines Navistar pays are too lenient and that
they were not given notice of the ruling. The court rules against the EPA.
July 2012: On July 6, Navistar announces a a new engine proposal called ICT-Plus, which will combine the company’s current engine technology with EPA-compliant technology used by competitors.
August 2012: Navistar forms a partnership with Cummins to create the ICT - plus system.
Navistar International Corp. has a long history in Clark County and employes 850 local workers. That’s why business reporter Everdeen Mason is committed to bringing you the latest in the companies troubles and triumphs.
Navistar International Corp.’s troubles continue to grow as the company — one of Clark County’s largest employers — suffers fallout from the failure of its engine technology to comply with emissions standards.
The truck maker, which employs around 850 employees at the Springfield plant, on Thursday projected third-quarter losses between $105 million and $145 million. That comes after announcing a switch to new engine technology because its 13-liter diesel engines didn’t meet 2010 emissions standards and in anticipation of potential non-conformance penalties from the Environmental Protection Agency.
The U.S. Securities and Exchange Commission requested the company’s financial documents from November 2010 to present, citing accounting and disclosure issues. SEC officials were unavailable for comment.
Now the company says that it is partnering with competitor Cummins Engines to provide the after treatment needed for Navistar’s proposed ICT-plus engine and that some Navistar trucks will have Cummins engines in the meantime. It is a costly solution for a company suffering from loss in sales and revenue.
SEC officials said they cannot confirm or deny an investigation, although Navistar has confirmed the request for documents. But just the request has heavy implications for the company.
“That’s pretty serious,” said analyst Vicki Bryan, director of research at GimmeCredit, a website that researches corporate bonds. “I raised concerns about what I thought was inaccurate disclosure and representation of materials.”
Bryan pointed out that the documents requested start when Navistar was first supposed to meet emissions standards with it’s EGR technology.
“Look at what did they report to the public versus what was going on,” she said. “Now we know it’s not what they said it was going to be. That’s serious for management and the board.”
Navistar officials said they would not comment beyond what was said in the press release about company finances. But spokesman Steve Schrier said the partnership with Cummins is a way “to move the ball along” so Navistar trucks will have EPA compliant engines by 2013.
Navistar announced last month it would cease using the EGR engine system it developed with help from the EPA and use a new engine process called ICT-Plus, which combines Navistar’s in-cylinder treatment with an after treatment system to reduce nitrous oxide emissions.
Auto industry expert David Cole said this kind of cooperation between competitors is not unusual in the industry.
“If they did not have the access to the Cummins engines, they wouldn’t have the capacity to fill that need,” he said. He said the new engine technology is what the rest of the industry uses to meet emissions guidelines.
Cole said Navistar’s initial engine technology development was a good idea since it would have reduced the cost of the engines by not adding a separate emissions control system, which is what Navistar will now purchase from Cummins.
“From a practical standpoint (emissions standards) is no big deal. Cars and trucks are about 98 percent lower in emissions than what they were 10 years ago,” Cole said. “The cost of that last bit of control is really high and the impact is very low.”
The cost is what has Navistar trapped. The company has lost the billions invested in the EGR technology, and once the banked emissions credits it has used to avoid non-compliance penalties run out, the company could be paying thousands of dollars per engine sold.
Bryan said finding a credible partner such as Cummins is what Navistar needed to get started on the new ICT-plus engine as well as secure a much needed $1 billion loan commitment.
But the analyst is skeptical Navistar can meet its 2013 projection for installing the ICT-plus in its trucks. And Cummins engines are significantly more expensive than Navistar engines, so the company will have trouble profiting from trucks more expensive to produce.
“They won’t be able to sell for full price like they would if it was a Cummins engine in a more reliable truck,” Bryan said.
Consumers could see those new Navistar-Cummins hybrids soon. Navistar’s Springfield plant produces mostly medium duty trucks but ha ramped up production on the 7600 WorkStar truck, said Jason Barlow, president of United Auto Workers Local 402, which represents local Navistar workers. The WorkStar requires the 13-liter engines the company is struggling with.
“We’ll be using some of (the engines),” Barlow said. “We’ve got a couple different models coming in like the 7600 Workstar they were building in Garland, Texas.”
The company is seeing more work but has slowed down on recent hiring. Barlow said two weeks ago the company hired 14 workers and several temporary workers.
“They’re trying to decide the labor content of the trucks,” he said.
And while Navistar determines what needs to go into producing trucks, shareholders are evaluating the company the same way. Shares have dropped 13 percent after recent announcements, and activist investors Carl Ichan and Mark Rachesky have each raised their share counts to 14.9 percent.
Bryan said three or four investors now hold 55 percent of the company’s shares. She said with that power, they could rally other shareholders and force changes in the board and management.
“And what this company doesn’t have right now is credibility,” she said. “I think a change in management could signal to the world that things will be different.”
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