CORRECTED -- In May, Navistar International Corp. named Bill Kozek, a 26-year veteran of Paccar, as president of Navistar's North America Truck and Parts business. He succeeded Jack Allen, who was promoted to chief operating officer.
Kozek took the position at a time when Navistar was still trying to recover from what in hindsight was a poor decision to try to avoid using selective catalytic reduction to meet EPA 2010 emissions standards and use only in-cylinder technology and exhaust gas recirculation. The company was not able to get its MaxxForce proprietary engines to meet the EPA standard on time and was drowning in penalties. It announced in 2012 it would adopt SCR after all, both on its MaxxForce 13-liter and by offering Cummins engines.
Kozek spoke with HDT Editor in Chief Deborah Lockridge about the company's progress and his first six months on the job, shortly after the company announced disappointing fourth-quarter earnings. Here's the Q&A.
HDT: Navistar's third-quarter financial results were not what the company had hoped, dragged down by continuing problems with the EGR-only EPA2010 engines. (See "Navistar's Turnaround Progress Overshadowed by Warranty Problems) From your perspective, how would you summarize the news? What are the most important takeaways?
Kozek: I'll give you my emotional feel of it. We were certainly disappointed in the results, but we're not discouraged. We're working hard to do the right thing to move forward. The warranty numbers are not where we need to, be but again I think the product we're putting out today are as good as anybody's in the industry, and our goal is just to continue to work through it.
We've fixed a lot of [those engines], we've got some work to do to fix more of them, but the key takeaway to me is we're putting out a quality product that we can be proud of.
HDT: It's got to be frustrating, right?
Kozek: Sure it is. There's a lot of smart people here who are working on the issues. Yeah, we're frustrated. We're disappointed but not discouraged, and we're going to keep getting through this. The important thing is [the warranty issues are] not on the new products. The other thing is there's a fixed population out there [of problem engines], so as long as we can get those fixed and those trucks moving, and I think a lot of them already have, we'll be in pretty good shape moving forward.
HDT: There are more than a few people who had all but written off Navistar in the past couple of years. What about the company and its challenges made you want to make the move?
Kozek: A really good group of people. When I worked at Paccar, the people at International were good; the products were always tough to sell against. I knew the engine strategy was a problem and there would be some pretty big challenges to overcome, but it was an opportunity for me to be part of a turnaround that would be something I don't think I ever would have had at Paccar.
HDT: Can you tell us a little bit about the corporate culture?
Kozek: Speaking up is encouraged and we want to make the right decisions. I think part of [the problems Navistar has had] was we were in a situation where we didn't speak up enough in the last three years. Troy [Clarke, president and CEO of Navistar] encourages collaboration. He encourages you to think creatively, he encourages you to make the right decisions after having all the information in your hands. It's collaborative.
HDT: What have you learned about Navistar since coming onboard? Anything that surprised you?
Kozek: I will say I was surprised at the high quality of our customer service organization and how we take care of the customers. That's been a very pleasant surprise. Customers want us to succeed, and our customer service is as good as anyone in the industry. In fact I think it's the best in the industry.
I've been a little surprised from a negative standpoint that we haven't turned around our market share as quickly as I thought we would.
HDT: What do you feel you've accomplished in your first six months?
Kozek: The thing I'm proudest of is, we meet with a lot of customers, and we think we've got a right plan for each one of those customers. And the customers are very open and they understand the situation we're in and they try to help us through those situations. I think we've got a good team to get those things done.
We've started to improve our market share. It's not as fast as I would like but we're getting there.
And I think we're making the right decisions on our products. The [announcement adding the Cummins ISB 6.7-liter diesel to the medium-duty offerings] in September, for instance. We're really growing our relationship with our supply base, so it's more collaborative than it's ever been. That's not just Cummins, it's all our suppliers. We're a lot more likely to do some collaborative, outside the box type things than we were in the past.
Our relationship with the outside agencies, like EPA is significantly better.
Our relationships with dealers are stronger. We do a real good job of communicating with them. We may not always agree, but we're communicating very openly.[PAGEBREAK]
HDT: Would you say in the past that perhaps the communication with outside agencies and dealers was not what it should have been?
Kozek: I would say that. We were fighting with the EPA, and I don't know that we always had real strong collaborative relationships with our dealers.
HDT: What do you feel you've brought to all this?
Kozek: Being in the industry for 26 years, I've seen a lot of things and know a lot of customers. I think that really helps. I think I bring a knowledge of some of the disciplines that really made Paccar a very good company and I want to bring those to this company. And thirdly I think I've got fairly decent relationships with our supply base, and that carries over so we can have some frank discussion and do things a little differently.
HDT: What are your priorities for the next six months to a year?
Kozek: Profitability is one, market share is two, and then continue to roll out our products with SCR solutions.
HDT: Do you think most of the cost-cutting is over, or is there still more to be done?
Kozek: We have done [a lot], we really have. It's been painful. Obviously we've got fewer people here than in the past, but we're making smart, disciplined decisions about every dollar that we spend. We want to make sure there is a return for that dollar. In a lot of cases it's making us a much better company, and that's good for our long term.
HDT: How do you go about rebuilding Navistar's reputation, which took a beating during the whole debate over EGR vs. SCR?
Kozek: That's one of those things, it's every day. You're in front of that customer and you explain to them the situation, they know for the most part the situation, [they see] we're doing a really good job of taking care of their EGR vehicles, then you move on to what are we doing with our new producs.
With some customers it's going to take a little more. Maybe a demo program is what they need to regain the trust. Maybe they need to try five to 10 before they get into that big bill. We've had some customers, God love 'em, who say, 'I'll take 250 of your engines,' and thankfully things have worked out really well. I think we've done a good job with the engineering of our current products.
We need to restore our reputation in the market. It takes time but I think we're doing a lot of the right things.
HDT: How far along is Navistar with its “campaigns” on the EGR-only MaxxForce diesels?
Kozek: We continue to improve those EGR engines. We've had a number of field campaigns; we've had a number of calibration changes to improve performance and fuel economy. Engine calibrations are something in our industry that's just going to continue. Everybody has 'em, and it generally improves the performance of the vehicle.
So we had all those and we're spending a lot of time informing our customers of all the changes we made and how these engines might operate a little differently and this is how you need to drive them correctly. Our competitors have the same issue; today's engines drive differently than a truck that was built in 2007, for example.
HDT: Freightliner knocked International off its medium-duty market share throne this year. How do you get it back?
Kozek: We basically had lost all the leasing companies, the big leasing companies that make up a large percentage of the medium-duty business. So we've gone out and rekindled those relationships and we've gotten some business through that. Again it's going to take a little bit of time, and we're going to show our customers that our new products are as good as anybody's in the industry.
HDT: Obviously the whole emissions thing has taken a great deal of Navistar's time and effort over the past couple of years. What are some projects that may have been put on the back burner that you may now be able to put some more attention into?
Kozek: We spent an enormous amount of time, money and energy in the last three years on engines, and we haven't updated our vehicles as much as we should have. We're spending a lot more money on that. We're going to be getting into natural gas vehicles and doing the engineering for those. Certain segments of the market that we haven't had the product to compete in, we'd like to get back into those as well.
HDT: Can you give an example?
Kozek: I guess I would focus more on the vocational end of things. Those are a lot longer term issues, because it takes time; oil and gas vehicles, the refuse vehicles, the ones that just take a little bit more engineering, those are projects that are going to take longer term.
My point is we're going to spend a lot more time, energy, money and resources on truck things vs. engine things.
CORRECTED to indicate earnings were fourth quarter, not third quarter. We apologize for the error.