Navistar CEO Peppered With Questions About Truck Engines
By Bob Tita, Of DOW JONES NEWSWIRES
CHICAGO -(Dow Jones)- Truck and engine builder Navistar International Corp. (
NAV) expects to convince some of its customers next year to try smaller engines
in their heavy-duty trucks to compensate for the company's precarious supply of
15-liter engines.
Investors peppered Chief Executive Daniel Ustian with questions Tuesday in the
wake of a proposed federal regulation that could block the company's plan to buy
enough 15-liter engines from Cummins Inc. (CMI) by the end of 2009 to cover next
year's demand while Navistar completes work on its own 15-liter engine. About
60% of Navistar's heavy-duty trucks are purchased with 15-liter engines.
"We believe that [15-liter] market can transition to a 13-liter engine," said
Ustian during a J.P. Morgan investor conference in New York webcast over the
Internet. "If the product does the job, the customer will want a 13-liter"
engine.
But Navistar's own 13-liter engine is new to the North American market and
remains largely untested under high-mileage conditions with commercial trucking
companies. Ustian played down the risks for Navistar to lose market share next
year if it isn't able to provide customers with the engines they're used to
buying. Navistar has a second-place share of the market for heavy-duty trucks
used for hauling semi-trailers.
"There's a potential for us to gain as many as we lose," Ustian said.
Customers "are willing to convert if it does the job and has the durability."
The uncertainty over the performance and availability of Navistar's heavy-duty
truck engines largely stems from the company's decision to deploy an emissions-
reduction system that will not be compatible with engines built next year by
Cummins, which has supplied most of Navistar's heavy-duty engines in the past.
A pending rule from the U.S. Environmental Protection Agency appears to limit
Navistar's ability to stockpile a year's worth of 15-liter engines built in 2009
by Cummins. Stricter federal standards on nitrogen oxide pollution have forced
engine builders to add elaborate systems for treating diesel-engine exhaust
beginning next year. Those components have added several thousand dollars to the
cost of 2010 diesel engines.
The EPA wants to restrict 2009 engine production to 2009 truck orders by
prohibiting truck makers from stockpiling lower-cost engines this year. The rule
is expected to take effect by the middle of December.
Despite the rule, Ustian maintained the EPA has already sanctioned Navistar's
supply strategy with Cummins. He also flatly rejected suggestions that Navistar
adopt the same emissions-reduction system as Cummins to allow Navistar to use
Cummins' 2010 engines.
"Our products are running," he said. "Why would we want to invest in some
other technology?"
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
(END) Dow Jones Newswires
09-15-091715ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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