Navistar Schedules Meeting With Analysts to Offer ‘Operational Update’ on Engines
By Jonathan S. Reiskin, Associate News Editor
This story appears in the July 9 print edition of Transport Topics.
Navistar International Corp. scheduled a conference call late last week with stock analysts, saying it would provide an “operational update” as rumors swirled about the truck manufacturer’s inability so far to offer a heavy-duty engine that can meet federal emissions standards without using credits built up with the Environmental Protection Agency.
Officials of the Lisle, Ill., manufacturer would not provide further information about the briefing, set for July 6, after this issue of Transport Topics went to press.
Navistar’s share price has dropped significantly over the past 12 months. The stock closed at $29.04 a share on July 3, down from $57.82 on July 7, 2011. During an investor call last month, when Navistar announced it lost $172 million for the three months ended April 30, Daniel Ustian, company chairman and CEO, described as “noise and speculation” commentary about his company’s inability to obtain EPA approval for its engines (6-11, p. 3).
Prior to the scheduled July 6 update, there were numerous reports from media and stock analysts that Navistar would yield in its opposition to selective catalytic reduction — the emissions technology used by all of its competitors — because the company has been unable so far to get EPA approval for its Class 8 engines, which use only exhaust-gas recirculation.
“We have to get this EPA thing behind us. I don’t think there’s any question it is a distraction for the senior management,” Ustian said in last month’s remarks.
Bloomberg News cited a June 29 report from equity research firm OTR Global, Purchase, N.Y., that Navistar would start offering SCR engines from independent manufacturer Cummins Inc. as an option for North American trucks made in 2013, but Navistar spokesman Stephen Schrier said, “Any commentary on us using Cummins for North America is rumor and speculation, and we don’t comment on rumor and speculation.”
Cummins spokeswoman Carol Lavengood said, “We are not in formal discussions at this time with Navistar regarding their plans to meet the EPA 2010 emissions standards.”
Navistar has been selling its MaxxForce engines in North America with the use of credits, a longstanding EPA program allowing manufacturers to generate credits by exceeding emission standards with some products and apply them when they cannot meet a regulation. Navistar filed for certification of its 13-liter engine in January and then updated the application with supplementary data in May, but EPA has not released a decision on whether it will certify the engine.
EPA earlier this year said it would fine Navistar a penalty of $1,919 per unit for selling engines that do not meet the 2010 emissions limits when Navistar uses up its credits, and Cummins joined the North American units of Daimler Trucks and Volvo Group in a lawsuit challenging that fine, saying the rule was improperly formulated. Last month a federal appeals court agreed, voiding EPA’s interim rule (6-18, p. 1).
The U.S. Court of Appeals for the D.C. Circuit has not formally implemented its ruling against EPA in the Navistar matter, but is waiting to hear on filings for a further appeal. EPA is also working on a rule to replace the interim rule.
Using EGR instead of SCR has been a major marketing point for Navistar, which has pitched its engines to fleet operators as being superior in terms of “fluid” economy rather than straight fuel economy and as a way to avoid buying the diesel exhaust fluid necessary in SCR engines.
OTR Global did not return telephone calls requesting comment, but reports spread to CNBC television and the Wall Street Journal. Other stock analysts also commented on the likelihood of a Navistar-Cummins deal.
“Any path forward for Navistar is likely to be lengthy and expensive, and the company may be faced with raising capital to bridge the gap while it develops and implements any go-forward strategy,” Ann Duignan wrote to clients of J.P. Morgan Securities prior to the Navistar presentation.
Duignan said what she considers most likely is that Navistar would continue to pay fines while developing its own SCR engine. She said that Navistar management would probably prefer work on an all-EGR engine that is compliant, but “the issue will be the size of the fines facing the company once the EPA issues its final ruling.”
Timothy Denoyer of Wolfe, Trahan & Co. said he spoke with two large Navistar customers, who said that they were told Navistar will offer Cummins ISX 15 engines as an option to Navistar’s proprietary MaxxForce engine, probably next year.
“We see Navistar’s return to Cummins as essentially inevitable,” he wrote to his firm’s clients. He said such a deal would mean higher profits for Cummins, Columbus, Ind., and an improvement in market share for Navistar, which has seen its slice of the market dwindle this year.
Meanwhile, investors Carl Icahn and Mark Rachesky have accumulated separate stakes in the company of more than 10% each, and a month ago the board of directors implemented a “poison pill” plan to make a hostile takeover more difficult (6-25, p. 3).
Updated information about Navistar may be found at TT’s website, www.ttnews.com.
