Navistar's Clarke Talks Change, Opportunity, Turnaround
March 22, 2013
LOUISVILLE -- In his first official outing as Navistar International's new president and COO, Troy Clarke jumped right in Friday morning by assuring the audience of supplier executives that "Navistar's not going anywhere but up."
"Recently we have come through some challenging issues," he said, referring to problems such as the company's financial losses and its failed attempt to meet 2010 emissions regulations without using selective catalytic reduction. "But if I can paraphrase Mark Twain, the rumors of our demise have been greatly exaggerated. We are moving ahead with renewed dedication and resolve."
Clarke's speech drew one of the largest crowds the Heavy Duty Manufacturers Association has ever had for its annual Breakfast Briefing at the Mid-America Trucking Show.
Clarke was named president and COO of Navistar last August, not long after being named president, Truck & Engine in July.
Moving on to broader issues, Clarke outlined four of the top issues that will affect where the trucking industry manufacturer and supplier business will be focusing its efforts: The price of fuel, the driver shortage, regulations, and economic-driven changes among carriers.
"We're gathered on the biggest stage of the trucking industry, the Mid America Trucking Show," Clarke said.
While uncertainty characterizes the external climate the industry operates in, he said, including such issues as sequestration and regulation, "We can only blame Washington for so much. No industry is immune from change. In fact, change is the only constant we can count on. We succeed by turning uncertainty and the need for change into opportunity."
1. Diesel Prices
"Over the next decade, one thing is certain," Clarke said. "Fuel economy will never be good enough."
That's not only because the price of diesel will continue to be high, he said, but even more so because of its volatility. "Each new global crisis seems to send the price of diesel fuel on a wild ride," he said.
That may change, however, as the U.S. increases its ability to meet its energy needs domestically. Clarke pointed out that the U.S. Department of Energy predicts by 2017, the U.S. will overtake Saudi Arabia and Russia to become world's largest oil producer.
At the same time, truck makers and industry suppliers are working diligently to develop more fuel-efficient equipment. "The entire industry is converging on a set of similar technical solutions," he said. "More and more focus will be on efforts to optimize the entire vehicle. It’s not just about engines." He said the main areas being addressed are electronic integration of powertrain systems, improved aerodynamics and rolling resistance. "Fuel economy gains will come in smaller increments and at higher product cost and complexity."
"Many people are still looking for another alternative," Clarke said. "Many believe that alternative is natural gas. We've seen hybrids and electric drivetrains come to market, but if there's one that people in this industry are truly excited about it's natural gas."
Because of the abundant domestic supply, Clarke noted, natural gas should cost less than diesel. And perhaps more importantly, it should be less volatile. "It's a domestic solution, so the next Arab Spring will not affect the price of natural gas. This should translate into more stable prices for natural gas."
"In the '50s commercial vehicles shifted from gasoline to diesel power. Many believe this will be a similar transformation."
2. The Driver Shortage
The pool of ready and able truck drivers continues to dwindle, Clarke said, with the American Trucking Associations saying we already have 25,000 fewer truck drivers than we need.
"Certainly new regulations affecting drivers mean many who were once welcome as truck drivers have to be turned away," Clarke said. "But there's also a social issue that may be larger. Driving a truck does not have the same appeal to young people as it did to previous generations. As manufacturers, it's our responsibility to build products that are easier to drive and safer, requiring shorter training times for a driver to become productive."
Increasing government regulations have not only been targeted at unsafe drivers and fleets, but also at reducing harmful emissions from trucks.
"Compliance comes at a price," Clarke said. "It increases both the cost of operations and the cost of equipment. Emissions surcharges alone over the last decade have added more than $20,000 to the cost of each heavy-duty truck sold and $10,000 to each medium-duty truck."
That added value is not retained over time, affecting the used truck market, he said. Nevertheless, he said, "used trucks are more expensive and technologically advanced than ever before, and that can impact the used truck buyer." Financing can be harder to come by, and repairs that were once done by an independent garage may now have to be taken to the dealer, at additional cost.
"When it comes to trucking, our leaders in Washington have a strong regulation mindset," Clarke said – however, he said, that's just part of being in this business.