Top executives of Navistar International Corp. have detailed how the truck, bus and engine manufacturer will “build on” the ground it said it gained during its 2012-14 “turnaround” campaign to ensure it will develop a “sustainable competitive advantage over the next five years.
“From adversity comes strength,” Troy Clarke, Navistar president & CEO, remarked during “Analyst Day,” a lengthy program the OEM hosted on February 4 at its Lisle, Illinois, headquarters.
“I’m convinced our best days are ahead,” Clarke added. Referencing the turnaround phase, which the company considers concluded, he said that Navistar had accomplished “10 years of progress in two years.”
Among the key accomplishments Navistar executives listed from that period were:
- Reduction of its breakeven point -- by over 50% since 2012
- Reduction in structural costs, which, measured as a percentage of revenue, fell from 15% in 2013 to 12% in 2014
- Reduction in warranty spend, which, as a percentage of revenue, came in below the 3.7% target that had been set for 2014
- Cost savings attained through the adoption of lean manufacturing processes and greater consolidation of manufacturing
- Improvements to product quality
- Putting in place a strong leadership team
Clarke also specifically pointed out that the manufacturer has completed its transition to SCR emission-reduction technology for diesel engines as well as its rollout of various Cummins diesel engines as optional power. What’s more, he stated that as of now, “our data shows the trucks we are building are the best in more than a decade.”
Providing more details was Walter Borst, Navistar executive vice president and CFO. He advised that North American revenues jumped by about 10% last year. Margins grew to 3.9% in Q4 ’14 — up from the 0.2% recorded for the prior-year period as well. Excluding the Navistar Defense unit and the Blue Diamond joint venture with Ford (which is slated to conclude this year), North American revenue reached $6.7 billion in 2014 —vs. $6.1 billion the year before — on the strength of a 6,400-unit upswing in sales.
On the other hand, Borst also reported that total revenue, at $10.8 billion, was no better than flat year over year, thanks to the OEM suffering drop-offs in both its defense and overseas truck business.
Looking ahead, Borst said that Navistar ha set its “target margin” for 2015 between 8% and 10%. In addition, he forecast the OEM’s “core” North American truck revenue this year will top out between $6.9 and $7.2 billion. He said that the positive outlook is predicated on expectations of overall industry growth as well as Navistar’s anticipated gains in market share.
In addition, Borst stated that the warranty spend target for this year has been put at between 3.3% and 3.7%, again as a percentage of revenue. He also said Navistar will further cut its structural costs in 2015 — to the tune of between 10% and 11% of manufacturing revenue.
Meanwhile, the company is still in the midst of a Securities Exchange Commission investigation about how it handled the 2010 emissions regulations. The Chicago Tribune earlier this week reported that the SEC is asking a federal court to force Navistar to release documents it believes the company should turn over to the commission in its fraud investigation.
As the Tribune reports, "The SEC is investigating whether Navistar violated federal securities laws by making false or misleading statements as it sought approval for the new engine technology by the EPA."
New uptime mission
During its presentations, Navistar emphasized its “new mission” of being “centered on maximizing customer uptime” as indicative of the OEM’s “renewed emphasis on keeping customers’ trucks on the road.”
“Uptime means more than designing and building trucks to stay on the road longer,” said Bill Kozek, Navistar president, Truck and Parts. “It’s our renewed commitment to the industry to deliver innovation, tools and services that keep our customers moving.”
As Kozek explained it, Navistar sees “uptime as commitment built on multiple levels…” that “speaks to what International Truck can offer its customers.”
As such, for Navistar, ensuring uptime includes:
- Truck design and approach to integration - Collaborating on engineering with industry component partners to “design vehicles with superior performance,” such as via the InternationalProStar ES fuel efficiency package, which combines the ProStar’s aerodynamics with a fuel-efficient drivetrain and axle components.
- Manufacturing - Per Navistar, it “puts tremendous rigor around its processes at its manufacturing facilities, using real-time quality metrics and progressive quality validation.”
- Parts and Service - International Truck claims to field the “broadest, most capable parts distribution and dealer network with more than 800 service locations, more than 10,000 trained technicians and over 8,000 service bays.”
- Technology - Navistar said it will “continue to enhance its capabilities in technology-driven uptime with OnCommand Connection,” which it termed “the only open architecture remote diagnostics system that provides customers visibility to the health of their entire fleet through a single portal.”