Digging out
Navistar says adding SCR to its trucks and replacing its CEO will clear the path forward

By Charlie Morasch, contributing writer

Lisle, IL – Driving through the Chicago suburb of Lisle you can’t miss the large complex of Silicon Valley-looking buildings just north of Warrenville Road near Interstate 88.

A giant glass circle on top of the main building’s front lobby appears to be an artist’s vision of a nine-story-tall satellite dish.

The lobby and adjoining open-air rooms boast enough square footage for all 3,000 employees of Navistar to gather for major announcements, said Jack Allen, who was named Navistar’s president for North American Truck and Parts in June when the company restructured much of its management.

About six months after most Navistar employees moved into the new facilities, they heard the announcement many had been waiting for: The company would switch to SCR. Despite the suspected inevitability of that change, the announcement has prompted many to ask whether a bankruptcy or other major changes would consume Navistar.

For years Navistar was roundly criticized for sticking with its in-cylinder engine gas recirculation treatment system while every competitor chose to use selective catalytic reduction with urea-based diesel exhaust fluid. More negative headlines popped up in early August after Navistar said the Securities and Exchange Commission was examining accounting and disclosure issues dating back to 2010. 

Longtime CEO Daniel Ustian – who had been blamed for gambling on EGR technology – reportedly was forced out of his job in late August and was replaced by Lewis Campbell.

Navistar will begin manufacturing trucks with 15-liter Cummins engines and Cummins urea-based exhaust after-treatment systems later this year. By spring 2013, Navistar plans to begin rolling out its own 13-liter engines with SCR after-treatment. Company leaders, including Allen, say using both technologies may provide the competitive advantage Navistar sought by being the lone manufacturer that didn’t require truck drivers to add urea-based fluid.

“We think that because of all the work we’ve done on the in-cylinder product ... we’re in the best market position to be able to fine-tune and optimize the engine and the after-treatment to drive the best performance and the best fuel economy in the market,” Allen said.

Allen and Navistar have skeptics to win over.

How they got here
In August, Navistar unveiled its integration of EGR with an SCR system that uses DEF after-treatment. Navistar is calling the system ICT+, or In-Cylinder Technology Plus.

Allen said Navistar wanted to “set the record straight.”

Navistar, Allen said, wanted to have a long-term competitive advantage for its customers and against its competitors. Allen said such lasting advantages are a rarity, particularly in trucking, where innovations are quickly emulated.

With EGR, International trucks not only met the .05 NOx standard as required by 2007 EPA emissions rules, but exceeded them. This allowed the company to store up credits to continue to sell EGR systems even after Navistar couldn’t get its advanced EGR engines to meet the lower .02 NOX emissions standards for 2010.

During the past two years, Navistar used those credits and EPA nonconformance penalties, or NCPs, to continue selling its EGR system.

Navistar’s technology needed to match the number of credits the company had accumulated, Allen said.

“And that’s really where the wheels came off the cart,” he said. “It’s really in the timing of that technology to be ready, versus when the credits ran out. We got to the point where the intersection of those two factors were coming together like a freight train.”

In early June, the company decided internally to make the switch.

Though Navistar repeats a “moving forward” mantra, giving up on EGR and its reported $700 million cost had to be painful.

“We’ll never know whether or not that technology and the credits would have lined up,” Allen said. “What we do know is we were onto something. And the reason we know we were onto something is by how long our competitors screamed. If you think about it, if they weren’t worried that we had a competitive advantage, why would they care? Why would they make such a big deal?”

Quieting the market
Besides a new CEO, Navistar learned in late August the EPA had approved a final rule to allow the company’s last non-compliant engines to be sold.

Tim Shick, Navistar’s vice president for North American Engine Sales, said customers with recent International engines needn’t worry.

“The thing those people want to know is, ‘what’s happening with the engine that I bought … what are you changing?’” Shick said. “So it’s a nice thing to be able to say, ‘nothing really.’”

Navistar engineers say very little will be altered to add Cummins engines and after-treatment systems and to adapt the SCR system onto Navistar trucks with Navistar engines.

In addition to an electrical recalibration and wiring harnesses, Navistar says the only other change of note between Cummins ISX engines and Navistar’s engines will be a sensor. That relative simplicity will help, said David Majors, vice president of Navistar’s Product Development-North America Platform.

“From the back of the hood to the front of the fifth wheel – what we launch with Cummins is identical to what we launch with the MaxxForce,” said Majors. 

The ProStar with 15-liter Cummins ISX will be launched first, Majors said, and the company hopes to put the 9900 into production in April 2013. PayStar will follow. International trucks will begin producing 13-liter MaxxForce engines integrated with Cummins SCR systems in April 2013.

Navistar will send launch teams to each of its plants for the rollout of each truck model.

Another timing benefit is Navistar’s new headquarters, which Majors said is the first such company building to house engine engineering and truck engineering under the same roof.

Truck and engine engineers spend much of their workdays in a room designed for collaboration. In another conference room, four projectors can show the entire truck – to scale – at a resolution 10 times that of a 1080p HD television.

In addition, Navistar recently announced news aimed at showing financial strength to withstand its SCR adaptation.

Navistar recently obtained a $1 billion line of credit from a group of major banks, including J.P. Morgan and Goldman Sachs, which Allen said was done largely to “quiet the market – to take some of the noise out of the system and take away some of the speculation that’s there.”

Will the combined technologies drive International truck prices upward?

“What’s a competitive price in the market?” Allen asked rhetorically. “That’s where we’re going to be.”

Near the end of the tour, journalists visited a call center where Navistar employees work near walls lined with truck parts while they help customers with maintenance and repair issues.

Then they showed us a smaller glass enclosed call center staffed by sharply dressed employees and adorned with large flat screens breaking down phone call data. 

Through the glass is a bistro – one of several coffee shops located throughout the Navistar campus.

After renovating its building, which formerly housed Lucent Technologies offices, Navistar has made several campus-like areas that offer quiet and a new backdrop.

When employees began moving into the new headquarters in January, a key question, Navistar said, revolved around which major American coffee franchise would be available at the campus: Dunkin’ Donuts or Starbucks.

Rather than tie itself to a single brand – this time Navistar chose both. LL