Navistar Steels Itself for Ford Business Loss

[kscarbel2]

Wall Street Journal / May 12, 2014

Commercial Truck Maker Has Big Hole to Patch in Medium Truck Sales

What happens when one of a company's biggest customers becomes one of its biggest rivals?

Navistar International Corp., a Lisle, Ill., commercial truck maker, is about to find out. For the past 13 years, Navistar built Ford Motor Co.'s F-650 and F-750 commercial trucks, an approximately $400 million-a-year business. Beginning next year, Ford plans to start making the $55,600-and-up vehicles itself, cutting out Navistar.

Chief Executive Troy Clarke plans to patch the hole in production and revenue by chasing high-volume, medium-truck buyers such as big rental companies, municipalities and distributors. His idea: offer customers a wider variety of engine brands and transmissions, allowing them to customize trucks to their specific needs. He is pressing Navistar's dealers to emphasize the $10.5 billion company's single focus on commercial trucks.

Trying to hold on to customers in the medium-size truck business is one more hurdle for Mr. Clarke, who became CEO after his predecessor's costly detour into building pollution-control systems for the firm's truck engines collapsed and Navistar was forced to abandon the effort. To win customers back, Navistar is offering engines made by Cummins Inc. and the same exhaust treatment system the rest of the industry uses. Navistar previously had offered only its own engines in its trucks.

"We are recovering our share, but we have more work to do," said Mr. Clarke, a former General Motors Co. executive who was appointed CEO in March 2013. The company has been losing money for more than a year, and posted a $248 million loss for its fiscal first quarter on $2.2 billion in sales.

Besides the troubles with its heavy-duty trucks, Navistar also has been losing market share for medium-duty trucks, or those that can carry up to 33,000 pounds. Its DuraStar and WorkStar trucks now account for about 26% of the North American medium-duty market, but that share is down from nearly 36% in 2011.

Medium-duty trucks are used as the underpinnings for many delivery vehicles, dump trucks, recreational vehicles and school buses. Market forecaster John Stark in Chicago called Ford's March decision to build its own vehicles a "real threat" to Navistar. "Ford has made all the investments to be a serious player in the market," he said.

Dearborn, Mich.-based Ford's coming trucks would share engines, transmissions and cab components with its other F-series vehicles to build economies of scale. Ford had been selling trucks built in Mexico by the two companies' joint venture, known as Blue Diamond Truck, since 2001. In 2015, Ford will start making new versions of the F-650 and F-750 at an existing E-series van factory in Avon Lake, Ohio.

"We're going to be everywhere in the market," said Todd Kaufman, director of F-series truck marketing at Ford. "We're not going to take a back seat to anybody" in the truck market.

He said the company intends to market its new trucks to the same truck and rental fleet operators courted by Navistar and others. To ease apprehension about trying the new designs, Ford plans to offer a five-year, 250,000-mile warranty on engines and transmissions, about double the industry's standard warranty. Ford intends to control costs by sharing cab components from its F-350 and F-450 pickup trucks.

Ford also will leverage its dealership network to support the new vehicles. About 600 of Ford's 3,000 U.S. dealers sell its commercial truck brands, and all of its dealers will be capable of repairing the F-650 and F-750 vehicles. "They'll be a big drawing card," said Charlie Gilchrist, president of Southwest Ford near Fort Worth, Texas.

Lee Dill, president of Circle D Truck Sales in Abilene, Texas, expects the coming Ford trucks to cost about $5,000 less than rivals because Ford is using in-house components and assembly. A Ford spokesman declined to comment on the pricing.

"After we found out they're going to be offering a purely Ford product, we're going to buy quite a few of them," said Mr. Dill. He said Ford's five-year powertrain warranty takes away much of buyers' uncertainty about the new models.

Navistar said it has no plans to increase its warranty incentives to drive medium-truck sales and is counting on the wider range of engine, drivetrain and other options to increase its share in heavy- and medium-duty trucks.

"The real advantage we have is purposely built commercial trucks, and we have dealers who are solely focused on commercial trucks," said Jack Allen, chief operating officer. "Those are inherent advantages over an auto-based truck dealer."

Navistar loyalists such as Daniel Murphy, president of Idealease Inc. in North Barrington, Ill., said orders for Navistar's medium-duty trucks are up 21% since the company began offering Cummins' 6.7-liter engines in the trucks in September.

"We came through a bad patch, but we've learned," agreed dealer Drew Linn, owner of Southland International in Alabama.

"Having the Cummins engines has opened some doors with new customers for us and calmed some fears with existing customers."

[Red Horse]

The key to this IMO is just how serious Ford is. Before the sale of Class 8's to Daimler, Ford and Navistar were the two big guys in class 6 and 7. Snce then, (1998) I think medium trucks was a half hearted effort. I thought for sure when the no compete expired in 2008, they would be back big time but no such effort was made.

We shall see. While the single power train offering (6.7 Power Stroke, Ford 6 spd auto) may appeal to a broad customer base because of the economy of scale issue, I have to believe that there will be many class 6, 7 buyers who will want more options. good combination for under 26,000 lb rental fleets? Probably. Good combination for a 33,000 lb dump truck, Propane or fuel oil tanker? I'm a skeptic.

My thought is the new truck gives them a chance to get up and running at the Avon Lake plant. Assuming sales take off like they think it will, could give them incentive to expand offering- like federalizing their own 6 cyl. diesel they build in Turkey. that to me would make a lot of sense-in particular if you buy into Mulaly's "One Ford" concept. And no reason why that 6 cyl. couldn't serve the "baby 8" market. I'm a firm believer that the future of class 8 will be the regional distribution tractor-pick up the container at the intermodal rail yard and deliver to the distribution center where the-unfortunately-imported goods containers are broken down for delivery via Fed Ex, UPS or company class 6/7 trucks.

[41chevy]

Since Navistar signed an agreement to sell their interests in Mahindra / Navistar in India.

Navistar recieved Chinese approval to join with JAC. The joint venture will focus on meeting the emerging needs of the Chinese commercial truck market by providing JAC with access to Navistar's Euro IV and Euro V compliant technology. The Joint Venture also sets the stage for global export opportunities of JAC's light-, medium- and heavy-duty commercial trucks to Europe and the Americans through Navistars dealer network.

Navistar is also marketing the Prostar in Russia and South Korea. We are apparently small potato's the the Medium Market.

[kscarbel]

Since Navistar signed an agreement to sell their interests in Mahindra / Navistar in India.

Navistar recieved Chinese approval to join with JAC. The joint venture will focus on meeting the emerging needs of the Chinese commercial truck market by providing JAC with access to Navistar's Euro IV and Euro V compliant technology. The Joint Venture also sets the stage for global export opportunities of JAC's light-, medium- and heavy-duty commercial trucks to Europe and the Americans through Navistars dealer network.

Navistar is also marketing the Prostar in Russia and South Korea. We are apparently small potato's the the Medium Market.

So far, Navistar has gone no where in China with JAC (Navistar is clueless on execution in China, Russia and Brazil). Navistar has been forever saying they will build small light truck engines sourced from their Brazilian MWM unit........but until now nothing.

And now, Navistar is considering putting MWM on the sales block, which would obviously kill the China engine production plan (unless JAC buys MWM?).

JAC is a fairly small manufacturer that has a minimal presence in the heavy truck segment. They're not competitive. JAC's single strength is its light trucks. In cars, medium and heavy trucks, they're barely on the radar.

[DailyDiesel]

JAC truck at Navistar Corporate HQ in 2012. Google street view also some some other offerings from European builders.

[41chevy]

JAC truck at Navistar Corporate HQ in 2012. Google street view also some some other offerings from European builders.

JAC had a large presence at the TT Expo in Moscow. They seem serious.

[kscarbel]

As an olive branch towards future (hoped for) cooperation, Navistar designed a new front fascia for JAC's tired last generation Hyundai Trago-based heavy truck (http://www.cvworld.cn/news/original/guangyao/110812/5703.html / http://www.360che.com/market/110413/14154.html).

And the K-Series with the Navistar-created front fascia has since been supplemented by the horrible looking Q-Series (http://www.360che.com/news/131104/28109.html).

But in reality, nobody is buying the Navistar-inspired K or the Q. Most customers still buy the cheaper M-Series that JAC and Hyundai started out building together (http://product.360che.com/img/c1_s66_b12_s49_m781_t0.html).

The specs and build quality are below par, and thus it continues to have a VERY small market share in China (the world's largest truck market).

International (Navistar) has shown the revised JAC tractor at some shows (as they did the Mahindra tractor), to lend the impression that they were actually doing something in China. But it was nothing more than propaganda smoke.

FYI: Prior to 2002, JAC was purely a light truck manufacturer, In March 2002, JAC paid Hyundai US$48 million for the technology, including factory machinery, to build Hyundai medium and heavy trucks less drivetrains. The trucks use fairly low-end Chinese engines, transmissions and axles. With no independent R&D ability of their own, JAC depends on contracted outside technical assistance.

[41chevy]

Seems to be Navistar's plan to use smoke and mirrors to give the impression of a large global presence. Paul