Navistar International Corp.’s recent troubles all center around one issue: without certification of the company’s heavy-duty diesel engine that they’ve invested in for eight years, the company could face major layoffs and billions in lost revenue.
Navistar — which employs around 800 people in its Springfield production plant — has been using 13-liter diesel engines that do not meet an Environmental Protection Agency rule that required engines to reduce nitrous oxide emissions by 95 percent by 2010.
Navistar’s troubles intensified this month when a federal court overturned an EPA rule that would have allowed Navistar or any manufacturer to continue using noncompliant engines in exchange for up to $2,000 in fines. The company’s stock dropped, and activist investors sought to gain more shares — prompting rumors of a takeover, change in management or even bankruptcy.
In court documents, the EPA argued that it needed to pass the rule or Navistar would have to stop almost all production and sale of its heavy duty engines.
“EPA estimated that Navistar’s inability to certify any Class 8 engines early in model year 2012 would cause layoffs of thousands of Navistar employees, the loss of billions of dollars in revenue to Navistar, and negative impacts on customers and suppliers,” according to federal court documents.
The court sided with petitioning manufacturers, including Mack Trucks Inc. It chose to overturn the EPA ruling and asked the EPA to set a final penalty ruling which is in the works.
A spokesman for Mack Trucks said it sued because the EPA passed the ruling without allowing compliant manufacturers to have any say in what the penalty should be or even know that it was an option.
“We’re happy with (the court’s) decision because we were not given right to make counter arguments,” said John Hartwell, Mack Trucks spokesman. “We don’t have anything else to say.”
Meanwhile, Navistar is still producing engines and trucks.
United Auto Workers Local 402 president Jason Barlow, who represents Springfield’s Navistar workers, was unavailable for comment. But previously he said that the plant is still ramping up for a production boost later in the year and that they are still receiving engines to build trucks.
“Unless the government steps in and says we can’t produce those engines anymore, we won’t see any loss,” Barlow said.
The company is still working with the EPA to get the engines certified, said Steve Schrier, Navistar spokesman.
For now “we continue to make and ship engines and our clients will continue to receive the products they ordered,” he said.
Springfield’s plant receives some of the noncompliant engines, but it mostly builds medium duty trucks that require a different engine, Schrier said.
In a CNBC article, national analyst Vicki Bryan said that until Navistar resolves the engine issue, activist investors and other companies most likely will not move to take over the company. This month activist investor Mark Rachesky acquired 13.6 percent of Navistar’s shares — taking the top spot from investor Carl Icahn with 11.9 percent of shares.
Bryan says the certification of the new engine is critical to Navistar’s survival.
“The best outcome we see for Navistar is getting EPA compliance — pronto — for its EGR engines, and even then the company will require serious repairs to its damaged brand and credibility,” Bryan said in the article. “Otherwise, Navistar’s time and options seem to be running out.”
Auto industry analyst David Cole believes Navistar will survive EPA regulation standards.
“They have really tried to develop a technology in their engines that permitted them a less expensive way (to lower emissions) without any addition of a material,” Cole said. “If it doesn’t work out they can use what everyone else uses. It’s not at all a fatal problem just something that will be a bump in the road.”
Cole blamed the EPA for the engine troubles.
“The EPA is extremely aggressive,” Cole said. “They don’t want to put anyone out of business but they want people to bow to their demands.”
The technology Navistar is trying to used is based on a process EPA patented in 2004. Navistar’s Schrier said the company pays licensing fees to the EPA for use of that process.
“It’s odd that the EPA has patented technology that if you use it you won’t pass standards,” said Kyle Koehler, vice president of local KK Tool Co. and a Republican candidate for Clark County commission this fall. “That’s hurting Navistar, that’s the issue there.”
Koehler contends that environmental regulations hurt manufacturers. He used his own business as an example. He said that when he attempted to expand the business last year, the expansion was delayed for months due to regulations on potential flood damage.
“Those kinds of regulations people are writing up somewhere, and they really have no reason and they don’t know why they’re doing it,” Koehler said. “It’s really frustrating.”
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