Navistar Inc. disputes allegations that it didn’t thoroughly test its MaxxForce EGR engines — allegations that surfaced in a lawsuit where a jury last week awarded $30.8 million in damages — including testimony about the engine program by former executive Jim Hebe that the company "did not test s**t".
The Tennessee jury found that Navistar committed fraud and violated the Tennessee Consumer Practice Act in connection with the sale of 243 Navistar International ProStars with MaxxForce engines to Milan Supply Chain Solutions. It awarded $10.8 million in actual damages and $20 million in punitive damages.
Tennessee-based Milan alleged that Navistar misled them, saying the truck maker failed to disclose that the MaxxForce 13L engine, which used exhaust gas recirculation to meet 2010 emissions standards rather than the selective catalytic reduction being used by other truck and engine makers, was launched with “serious known defects.”
Milan also alleged that Navistar, while touting the quality of its testing program, knew that the testing had serious flaws, was incomplete at launch, and put the trucks into customers’ hands knowing that the customers would end up becoming the de facto test fleet for Navistar’s new 2010 year model engine.
In a statement, Navistar said it is disappointed in the jury’s verdict and is evaluating its options to challenge it, noting it has successfully defended similar claims in several jurisdictions, including dismissal of claims of fraud in courts in Texas, Wisconsin, Michigan, Indiana, Alabama, and Illinois.
“Navistar tested the MaxxForce 13 engine consistent with industry standards,” the company said in a statement. “They were tested for 12 million miles prior to launch under rigorous conditions, in test cells and on the road. At the time of the product launch, we were confident, based on this testing, that the product would perform. All products undergo continuous improvement throughout their lifecycle. When some parts unexpectedly failed, we fixed them under warranty for our customers, including Milan Supply. We've invested a significant amount of resources standing behind our products and supporting our customers.”
Indeed, those warranty claims have dogged Navistar, being a key factor in many quarters of disappointing financial results.
EGR vs. SCR
Milan purchased the MaxxForce-powered ProStars in 2011 and 2012. The MaxxForce engine used Navistar’s go-it-alone strategy of “advanced exhaust gas recirculation” to meet EPA 2010 emissions regulations, which it used hoping to avoid the use of selective catalytic reduction (SCR) adopted by other truck and engine makers. However, Navistar was never able to get EPA approval for the MaxxForce engine after the expiration of its emissions credits, at which point it switched emissions-control technologies to SCR.
Since that time, Navistar has overhauled its management team and product lineup, moving to engines supplied by Cummins and a new Navistar A26 engine just going into production developed based on proven engine technology from new partner Volkswagen.
What would eventually turn out to be an ill-fated decision by Navistar to use Advanced EGR instead of SCR led to numerous quality problems with the engine, which resulted in hundreds of millions of dollars of warranty costs to Navistar and losses on the resale market for trucking companies like Milan.
During the trial, numerous executives testified either live or by deposition, including the aforementioned comment from Jim Hebe, former senior vice president of North American sales, who said Navistar never tested the final version of the engine before selling it to customers.
In an email to current CEO Troy Clarke, Navistar’s current Senior Vice President of Engineering Dennis Mooney quoted former Vice President of Quality Tom Cellitti (who was in charge of testing the Maxxforce engine) as saying over and over again prior to the launch to customers, “we have no field testing,” because the company only tested engineering development trucks rather than validation trucks.
In the same email, according to plaintiff’s attorneys, Mooney admitted that customers ended up uncovering problems that Navistar would have uncovered with the Maxxforce had it been able to do more testing.
In another email exchange between Mooney and Clarke revealed at the trial, Mooney said the management had told the board of directors in 2013 that the “physics of the EGR strategy is (sic) not sound.” None of these things were ever revealed to the public prior to trial, according to attorneys.
The jury also heard evidence that Navistar knew when it launched the engine that critical engine components had serious quality problems and a shortened life span. For instance, the EGR cooler allegedly had a life span of less than 20% of the design requirement based upon testing done before the sale of the engines to the public, according to the attorneys.
While the attorneys for the plaintiffs charged that none of this information was disclosed to customers, Jack Allen, the former chief operating officer and president of truck operations, testified for Navistar that in his opinion it was “normal business practice” for companies to not disclose to customers in advance of a sale about known defects in the products or to disclose to customers that they were buying a product that had not been fully validated or tested by the manufacturer.
“The jury seemed shocked to hear this testimony about the corporate culture and philosophy of Navistar from one of the company’s top executives,” said Clay Miller of the Dallas law firm Miller Weisbrod, lead trial attorney for Milan, referring to Allen's testimony. Miller said he believed this played a key factor in the punitive award.
Milan and its attorneys also criticized Navistar, saying the company refused to work with the fleet to address issues and instead went the litigation route.
Navistar said it “strongly disagrees with plaintiff counsel's characterizations of Navistar's conduct. Navistar has and will continue to defend our products, our reputation in the market, and the integrity of our employees.”