Navistar's Spiral of Despair: Some background.

Tomorrow is one of the biggest day's in Navistar's history - not our words, but CNBC's. The World Truck Blog has been on this case for close on five years now, and so the following  may be of interest. It's a chronology that we put together back in 2010 and is meant to replace the many posts that we put together over the period which have been mislaid.

What is published below is confirmation of our view in 2010 that Navistar would have to change course or would  go bang. We suspect that tomorrow, it will change course, and we suspect that as result of that, and as a result of a likely $500 million writedown that will necesitate, it will go bang.

Chapter 1

Pre 10.31.2007.

The Shift Towards Globalization.

 The latter years of the 1990’s saw a marked shift away from the notion of a regional truck manufacturer, and a growing focus upon the idea of a global manufacturer. In 1996, PACCAR acquired DAF Trucks out of bankruptcy, and therefore ownership of a Dutch OEM passed to a North American company. In 1998, Daimler AG merged with Chrysler—a marriage that was made much of in the automotive media—but for the truck industry, more significant was the acquisition of Renault Véhicules Industriels by Volvo AB, in a deal that was finalized on 2nd January 2001.


This latter deal added Mack to the existing Volvo AB North American operation.  This is an important factor in this analysis, as the relationship between Mack and Renault VI was a  close one and complemented the increasingly integrated relationship that existed between Volvo AB and its US assets (White, Autocar and Western Star, acquired in 1981) . Conversely, Daimler-Benz’s Mercedes-Benz truck division and Daimler’s US subsidiary Freightliner, acquired by Daimler-Benz also in 1981 were, at the time, two very separate operations.


While those referenced above are very much headline deals, perhaps more significant was the launch of Daimler’s Powertrain Unit (PTU), just prior to the merger with Chrysler. Speaking retrospectively in 2000, SVP PTU Claude Elsen said:


"There's a world of globalization out there, and we have to take account of OEM concentration. OEMs have expanded by acquisition or merger into new geographic areas, and as they expand they focus on the core competencies of designing and selling product, and then on anything else they can offer as services around the product. On the component side, the make or buy question arises.”


Elsen’s comments make a good starting point for this discussion, as they demonstrate a very clear shift in philosophy on the part of the European truck manufacturers. A good example of this paradigm shift is that of component manufacturing.  Long founded on the basis of vertical integration – as opposed to the assembly system preferred in North America – the European industry, which by now could at least claim majority ownership of the global truck industry (albeit during an era that predated growth in China and India), saw fit to dictate terms to its North American subsidiaries. The new approach was a simple one, and was predicated entirely on scale. If a company can produce x engines at a unit cost of y, so went the theory, then, by extension, that same company should be able to produce 10x engines at a unit cost of considerably less than y. This somewhat simplistic economic analysis – new to the North American OEMs – formed the cornerstone of what is now termed the global truck industry.


Whereas European OEMs had long espoused vertical integration, and the three primary engine Tier 1s – Caterpillar, Cummins and Detroit Diesel – had played an increasingly peripheral role within the European markets, the same could not be said of North America, where the market was dominated by operator choice. Here, the Tier 1s dominated the landscape, and the mindset that prevailed within the marketplace – both from the perspective of supplier and customer – was one almost completely at odds with the new thinking emerging from European Head Office.


This shift in emphasis was made manifest during 2000, with the acquisition by DaimlerChrysler AG of Detroit Diesel Corporation, and the formation of the Powersystems division. This move sent two clear messages to two different sets of market stakeholders within North America. To the two remaining Tier 1 engine suppliers, the message was obvious. DaimlerChrysler’s preferred engine choice was now the DaimlerChrysler-owned Detroit Diesel. Given that Freightliner, DaimlerChrysler’s North American truck brand, boasted a considerable market share, this move would have given both Caterpillar and Cummins considerable cause for thought: at a stroke, a significant part of their respective addressable market had been – potentially – removed from the board.


Whither the Tier 1s?


If CMI and Caterpillar were impacted by these events, it seems reasonable to assume that so too were DaimlerChrysler’s North American competitors. This discomfort, we would assume, have been felt at different levels of intensity.


For Volvo – at least in Gothenburg – the acquisition of Detroit Diesel would no doubt have been welcomed. Here was an opportunity – legitimized by DaimlerChrysler’s action – to pursue captive business within North America by deploying its own engine range. PACCAR might have felt rather more nervous, but could at least derive some comfort from its existing European engine manufacturing operation.  Although DAF in Europe had been more reliant upon Tier 1 engine supply than many of its local competitors – perhaps a function of its US and therefore assembly-minded ownership – it could at least claim to have a Plan B should such Tier 1 supplies dry up.


Navistar, conversely, must have watched events during 2000 with some trepidation. Despite considerable expertise in Medium Duty engine production, it was wholly reliant upon Tier 1 supply for its Heavy Duty Class 8 range. Unlike Volvo, Mack and PACCAR, however, it had no other place to go. Navistar needed to ensure engine supply, and, in the particular chronology of the automotive industry, such a supply deal is something difficult to broker and implement overnight.


During 2000 and 2001, Navistar made approaches both to Volvo and Cummins with a view to striking some form of deal that would ensure continuation of supply. Navistar’s attempt to negotiate a JV with Cummins for Heavy Duty engine production were suspended in May 2001, while its attempts to enlist Volvo AB as a Heavy Duty engine supplier were terminated in December of the same year.


We apologize for this excursion into history, but, in our analysis, key to understanding Navistar’s current predicament is understanding that its entire Heavy Duty engine policy as it stands today was born not out of strategic consideration but out of perceived supply risk. During 2002, Navistar was not seeking a strategy, but a guarantee.


Navistar’s eventual choice of engine partner – MAN – came as no surprise. The two companies signed a strategic agreement on 6th December 2004 that saw MAN agree to supply its D20 and D26 engines to Navistar. On 1st May 2005, Navistar acquired Brazilian engine manufacturer MWM Motores. Seemingly, this latter move was to provide Navistar with a lower cost production site for the MAN D20 and D26 engine blocks, which would then be dressed in its Huntsville, Alabama engine facility.


Both sides benefited from this agreement. Navistar needed an engine, and MAN needed some volumes. MAN had long feared a hostile takeover approach, and, potentially, the Navistar deal might have been seen by Munich as a possible door opener to a broader agreement between the two companies. However, MAN’s $12.2 billion offer for Scania, made on September 18th 2006, ended any such possibility, beyond that suggested by MAN CEO Håkan Samuelsson in an interview with the Frankfurter Allegmeine Zeitung, which cited him as saying:


“I have said we are open for a deepening of cooperation with Navistar. A shareholding is possible, but not in the company itself but in joint projects.”


The MAUT Effect.


However, we regard discussion of a possible MAN-Navistar deal as something of a distraction here. Instead, a more important date is 1st October 2005: the implementation of the Euro IV emissions legislation and the MAUT Effect.


Euro IV mandated NOx levels of no more than 3.5 g/kWh and PM of 0.02 g/kWh. It represented an opportunity for compliance with either of the two different emissions control methods: SCR or EGR. SCR was favored by Mercedes-Benz, Volvo, Renault, Iveco and DAF, while Scania and MAN favored EGR, at least for compliance with Euro IV.


On 1st January 2005, little more than three months after the implementation of Euro IV, Germany introduced the LKW-MAUT tax for Commercial Vehicles for vehicles weighing in excess of 24,000 lbs wishing to use the Autobahn network.


At the same time as the imposition of LKW-MAUT, the German Federal Government encouraged the early adoption of Euro V (2.0 g/kWh and PM of 0.02 g/kWh), which was not due in force until October 2009. For ‘encouragement’ read ‘significant fiscal incentive’; any truck operator who was likely to spend any time whatsoever on the German Autobahn network had little choice but to opt for Euro V.


Euro V at this time was attainable only through SCR.


The LKW-MAUT incentive – given Germany’s central location in terms of the European highway system – had an immediate skewing effect on demand. As Europe’s largest truck market, every OEM had to offer a Euro V-compliant product or be effectively denied access to the German market.


Hence the reason – by our analysis – for the very rapid adoption of SCR technology within Europe. But if we break the figures down into incentivized against non-incentivized markets, the dominance of SCR is demonstrably less. Nowhere was this more obvious than in the UK, which offered no incentive for early adoption of Euro V.


A combination of highly competitive pricing and an imaginative advertising campaign (which encouraged truck operators to AdNothing a play on the European name for DEF, AdBlue, saw MAN’s market share in the UK grow considerably during 2006. We cannot be certain, but we suspect that this did not go unnoticed by Navistar.


Europe and North America begin to Converge.


There is always a risk inherent in making comparisons between the North American and the European truck markets, but that made between the United Kingdom and the United States as of 2006 would seem to be a robust one. Both markets were – and still are – populated by conservative truck operators who are reluctant to embrace new technology. Both markets are populated by truck buyers who remain suspicious of European head office, and, crucially, both markets were, at the time, non-incentivized.


Complicating the comparison – and thus the choice – for North American OEMs was the EPA’s guidance in 2001 regarding SCR, which was equivocal at best, and dismissive at worst.  SCR at the time was an unknown quantity as far as road transport was concerned, and, despite the best efforts of both Daimler and Volvo, both of whom lobbied hard for the adoption of SCR technology in North America, the EPA chose not to accept it as a route to compliance for the EPA 2004 legislation.


Navistar thus found itself in a position to choose between two competing technologies. The European-owned OEMs – Freightliner/Detroit Diesel and Volvo-Mack – had little choice but to subscribe to Head Office edict and to promote SCR, thereby allowing potentially marked volume increases through the development of a common engine platform for both North America and Europe. PACCAR was less constrained: despite the launch of its MX engine range in Europe in September 2005, it appeared to signal continued adoption of Tier 1 engines through the 2007 and 2010 legislation, with then VP Jim Cardillo saying:


"The commissioning of PACCAR's $16 million state-of-the-art engine development and test center is proceeding smoothly. . . .PACCAR's exciting new MX engine, for use in DAF's XF and CF vehicles, is a beneficiary of the increased investment. In addition, the test center will enable PACCAR to better coordinate the activities of independent engine, transmission and after-treatment suppliers to meet the 2007 and 2010 emission standards. PACCAR is a leader in seamlessly integrating complex new engine technologies with sophisticated air management and emission systems."


Both Tier 1 suppliers – Cummins and Caterpillar – along with Navistar – had little baggage to port into this debate. For the Tier 1 suppliers, the adoption of SCR in Europe was of little importance, as both were increasingly marginal players upon the European stage, and neither chose to compete after the imposition of Euro IV. Both could, therefore, concentrate firmly upon the North American market. Navistar, at this point, was in a similar position.


We should clarify one of the vagaries of the EPA legislative program for Heavy Duty on-highway trucks. On December 21 2000, the EPA issued emission standards for model year 2007 and later HD on-highway engines that mandated very significant reductions as of January 1st 2007. However, whereas a reduction in PM to 0.01 g/kWh was required as of the implementation of what is termed EPA 07, the full reduction in NOx mandated as a part of the 2000 edict was not required to be in force until 2010 and the advent of the standard now termed EPA 10. NOx output thus remained relatively high during the period of applicability for EPA 07, with most North American OEMs choosing to meet a Family Emission Limit (FEL) of between 1.2 and 1.5 g/kWh, and with some engines certified as high as 2.5 g/kWh.


While the focus in North America was very much upon PM reduction, Europe was more concerned with NOx reduction. The shift from Euro IV to Euro V – a shift encouraged by Germany’s LKW-MAUT program – required no reduction in PM (it remained at 0.02 g/kWh through both the 2005 and 2008 levels) but did require a marked reduction in NOx (which was required to be reduced to 2.0 g/kWh at Euro V, down from 3.5 g/kWh at Euro IV).


Balancing Technology Choices.


Road transport, both in North America and Europe, is not just governed by applicable legislation, but defined by it. While efficiency, driver comfort, residual value and the like are all factors in the procurement choice, if a vehicle does not comply with the prevailing legislation, it does not make it to the starting line.


The prevailing legislation – Euro IV and V in Europe, and EPA 07 and 10 in North America – was and remains clearly defined. For the supplier, the challenge was therefore one that provided a product optimized for the marketplace within that legislative framework.


From an engineering perspective, compliance with Euro IV, V, and EPA 07 was possible through the adoption of EGR alone. However, the technology trade-off here was one that saw a marked increase in fuel consumption.


European truck operators have long been used to high diesel prices. In many EU markets, diesel powers not just Heavy Duty trucks, but the majority of the passenger vehicle parc, and both it and gasoline are regarded as legitimate sources of tax revenues. As a result, fuel is the single largest variable cost incurred in most European trucking operations.


In North America, where lower fuel prices prevail, the largest variable cost – at least during the period under examination here – was that of staffing the truck. Notwithstanding the vagaries of the employment market in both regions under review, the imperative for those OEMs supplying the European market was the provision of products optimized for fuel efficiency. Their North American counterparts had, we would argue, a greater focus upon driver acceptance.


Fundamentally, EGR requires that an engine works harder in order to work cleaner. SCR allows that the engine may, for want of a better word, relax, and that the cleaning process be outsourced to the after-treatment process.


Were no emissions legislation to apply, engineers could tune a truck engine to provide optimum efficiency. Legislation does apply, and so this tuning has to occur within the parameters laid out in law.


Applying EGR as a solution for emissions reduction works up to a point. After this point, the trade off between simplicity – no additional chassis hardware, no requirement on the part of the driver to maintain DEF levels – and increased fuel consumption becomes a more problematical one.


As legislation mandated gradual reductions in both NOx and PM over time, the tipping point for the trade off referenced above drew closer. Europe gave up on in-cylinder treatment first, on the basis that fuel consumption benefits would outweigh driver dissatisfaction and chassis packaging issues. Given that European vehicle legislation mandates very strict vehicle length and weight limits, this required considerable chassis re-engineering on the part of the relevant OEMs. This, along with the cost of developing road-ready SCR systems, resulted in a significant R&D bill, and an on-cost to European buyers of some €9,000. This price hike remains the single largest increase in terms of the European truck industry and underlines the risk that the European OEMs were taking at this point. It was, however, a risk that those who had adopted SCR deemed to be worth taking.


MAN and Scania are often cited as adopting EGR rather than SCR. This is not completely accurate. Both OEMs deployed EGR for Euro IV, but had no choice but to use SCR both for the larger displacement V8 engines and, initially, for Euro V product.


This leads us to make an important observation. SCR-equipped vehicles dominated sales in the Germanocentric European markets as a result of the imposition of LKW-MAUT. Had MAN and Scania been in a position to supply that same market with an acceptable, EGR-equipped vehicle, they would have commanded a huge advantage. Not only could they have offered LKW-MAUT-friendly products, they could have also eliminated the cost of AdBlue / DEF. Such a market advantage would have been almost unassailable.


But such an advantage lay out of the reach of both MAN and Scania, two companies possessed of very deep reserves of engineering talent. Scania eventually launched some EGR-equipped Euro V product almost two years after the LKW-MAUT incentive was announced, but today offers SCR engines in addition to it EGR range on all but its 13-liter family. On April 16th 2009, over four years into the MAUT incentive, MAN, which had been supplying the German market with SCR-equipped Euro V compliant products, announced that it would limit its EGR-equipped range to MD and HD engines up to 440 bhp, a power output that sat at the low end of European operational requirements.


SCR provided a marked benefit in term of fuel consumption for European truck operators, with improvements of between two and five percent reported depending on operation. Some time prior to the imposition of Euro V on October 1st 2009, it had become the de facto standard across Europe, and many OEMs had ceased to offer Euro IV product.


North America chose to adopt EGR as a route to comply with the PM requirements mandated for EPA 07. Despite growing pressure on the part of Daimler and Volvo AB for the EPA to accept SCR as a route to compliance, the reality of the 2007 legislation was that it offered sufficient latitude to allow for a continuation of EGR technology, albeit at a slightly increased rate. This increase in EGR had a subsequent effect upon fuel consumption, but, unlike Europe, North America had less concerns – at the time – about fuel efficiency, and was more focused upon operational simplicity.


The pre-buy witnessed ahead of 1st January 2007 was a significant one, and the market for HD trucks following the imposition of the new legislation was soft at best. This was entirely to be expected, and, when Navistar announced its plans for 2010 on 31 October 2007, there was a general assumption that the pre-buy effect was coming to an end, and that the North American truck market would return to an upwards trend during 2008.


Chapter 2


10.31.2007 – 08.13.2008


Declaration of Intent


It is notable that Navistar was the first of the North American OEMs to declare its hand in terms of 2010 compliance, and that it did so over two years in advance of the date of implementation. Navistar’s announcement on 31 October was very clear in terms of its eschewal of SCR, but made no reference to its policy of banking EPA credits accruing from its MD engine supply deal with Ford.


An analysis both of Navistar’s choice of EGR, and its strategy that went forward from this declaration, must take into account a number of different factors.


We suspect that Navistar’s decision was predicated on two different assumptions. Its European partner, MAN, was, at the time, still very much committed to producing EGR engines for non-incentivized European markets. Moreover, in those same non-incentivized markets, the MAN product was performing very well in terms of sales. At the same time, and, notwithstanding the uncomfortable relationship between the two companies, Navistar may well have considered its relationship with Ford as offering an excellent opportunity to bank sufficient EPA credits in order that it could compete with – possibly – a uniquely differentiated – and very much simpler – technology at 2010. Ceteris paribus, these were a reasonable pair of assumptions, and bear comparison with those presumably made by Cummins, which, in addition to its credit-generating Dodge supply business, was – and remains - JV’ed with Scania, and, as a result, had access to the high pressure XPI injection technology vital to the efficacy of low emission EGR engines.


Hindsight demonstrates that these two assumptions were, however, woefully misplaced. At the time, though, the North American truck market was focused less on 2010, and was far more concerned with the immediate impact of a continued downturn. The market had expected soft conditions through most of 2007, but when those conditions ran on into 2008, expectation turned into apprehension, and this served to muddy the 2010 picture yet further.


As a result of market attention being focused on the selling of trucks during 2008, what should have been a growing concern over the sustainability of Navistar’s engine strategy was marginalized. However, analysis of one of the cornerstones of its approach – that of the accrual of credits through the supply to Ford – demonstrates that the alarms should have been sounding by this time.  However, it should be pointed out that Navistar had not, at this time, confirmed that it would deploy credits in pursuit of 2010 compliance.


The Ford Business


During FY 2005, Navistar shipped 149660 engines to Ford. During 2006, shipments fell back to 139,560, and, during 2007, Navistar recorded 115930 shipments. We cannot comment upon how many – or how few – shipments Navistar needed to record in order to render its 2010 EGR + Credits strategy as a viable one, but we have to assume that its performance during 2008 – during which time it shipped just 73737 engines – must have caused grave concern in Warrenville.


Caterpillar Exits the HD Market


What attention that was being paid to Navistar’s 2010 strategy was deflected yet further by the announcement made on 12th June 2008 of the Strategic Alliance with Caterpillar. Caterpillar had long been rumored to be contemplating an exit from the on-highway HD engine market, and the near disastrous performance of its ACERT engine in 2007-compliant guise can only have served to expedite this decision.


The Caterpillar announcement was followed on the 16th June by a reaffirmation of the Cummins – Navistar supply deal which, at the time, would have seen Navistar offering Cummins’ 15 and 16 liter EGR engines in the International truck range.


Navistar is – Seemingly – Well-Placed.


During the summer of 2008, Navistar was positioned thus. It had – potentially – access to a 2007 compliant EGR engine through its relationship with MAN, and, we assume, an expectation that MAN would seek to extend this technology further, as demand for non-after-treatment engines in non-incentivized markets continued to prove robust. For Navistar, access to a captive 13 liter (in truth 12.4 liter) engine was doubly important, as it allowed the company to offer a smaller volume engine appropriate for its core marketplace and, crucially, to retain aftermarket business within its own network.


This same network had greeted the news of the Caterpillar deal with some outrage, and so holding out the promise of increased aftermarket revenues may have served to pacify the almost universal anger expressed by the Navistar dealers. With the Cummins 15 and 16-liter options also available to it, Navistar had, at least in theory, a full line of differentiated products that required no after-treatment, would likely generate increased network revenues and, in Caterpillar, a new best friend with a global footprint. Had one judged Navistar’s position during this time purely on the basis of historical North American truck market behavior, it would have been difficult to find fault with it.


And then Cummins changed its mind.


Chapter 3


08.13.2008 - Present


Cummins Changes its Mind


Cummins’ decision to switch from EGR to SCR cannot have been one that was easy to take.


We suspect that the reasons behind Cummins’ change of course were threefold. All but one of the North American OEMs were by now, if not firmly committed to SCR, then certainly heading in that direction. As a Tier 1 supplier to the North American market, Cummins was – we assume – wary of its addressable market, and by proffering an alternative technology, and one at odds with the strategic direction of its customer base, Cummins was in an awkward place with EGR. Notably, some months after its switch to SCR, Daimler Trucks North America restored Cummins to its option list.


Cummins had also been banking on accrued credits through its supply to Dodge. We have already referenced the steep decline in Navistar’s shipments to Ford during the relevant period, and it seems reasonable to assume that Cummins may well have erred on the side of caution in terms of its likely credit bank as of 01.01.2010. While emission credits do allow for engines to be supplied in non-compliant guise, that same supply without credits is both extraordinarily costly, and, as an added complication, illegal. Cummins may well have regarded this as too great a risk.


But the real determinant behind Cummins’ change of direction seems to be one that was rather more fundamental. It could not get EGR to work in a manner that the market would find acceptable. We can only offer the unconfirmed comments of those close to this decision by way of evidence for this assertion, but its appears that Cummins was unable to come within seven percent of SCR efficiency levels with its EGR solution. In a marketplace in which returns can be as low as three percent for the truck operator, a seven percent fuel penalty is unworkable, especially against the backdrop of $4.50/gal diesel fuel, and fuel costs aggregating to more than driver wages and benefits.


If any company could have achieved a market-acceptable EGR solution, it would likely have been Cummins. It has a long history of HD engine design, considerable reserves of expertise, access to class-leading XPI technology and, notwithstanding the issue of competing with its customers as referenced above, a marked vested interest in offering a non-after treatment solution at 2010. Given the choice between after-treatment and no after-treatment, and no fuel efficiency gain or loss between the two, no sentient truck buyer would opt for after-treatment. Were that same non after-treatment engine to be offered by a company possessed of Cummins’ pedigree, it would have taken the market by storm. Cummins was no doubt aware of this, and we suspect that its volte-face over EGR must have been a very bitter blow.


Perhaps more significant, however, is the fact that Cummins didn’t just change course to CR, but that it also dropped EGR completely. Cummins could have adopted a hedged position here, and supplied both technology types to the marketplace, a policy adopted in Europe by MAN, Scania, and, for a brief period, Volvo. That it opted to drop EGR completely was a remarkable, and very telling move.

Likely Reactions to Cummins’ Change of Direction


Various sources have told us that the reaction to Cummins’s about face was – at least in the SCR camp – one of almost unrestrained rejoicing. Not only had a key competitor embraced a common technology, but, jut as importantly, Cummins’ decision to opt for SCR meant that the entire Cummins’ service network would now carry supplies of DEF. One of the key criticisms of SCR technology – and one of the main concerns of the EPA – was the availability – or otherwise – of DEF, and the addition of the Cummins’ Distributor network to the nascent DEF infrastructure was both hugely important and very welcome. Navistar, by comparison, remained – publically – very tight-lipped at this news. In private, sources tell us, its reaction was rather less sanguine. “Livid” is an adjective used with some frequency by way of a description.


We regard Cummins’ move as being the key inflection point in this analysis. With a Tier 1 the size of Cummins also pursuing an EGR strategy, Navistar, despite its very recent entrance to the HD engine market could reasonably claim that its approach was, by extension, one that was entirely legitimate. That legitimacy was immediately lessened once Cummins moved to SCR.




Navistar Reveals its Credit-Based Strategy


While there had been some quiet pondering as to quite how Navistar’s proposed EGR solution would perform at the 2010 0.2 NOx level, the publication of a report by Ricardo Consulting on September 3rd caused those commentators watching both Europe and North America to question its claims rather more forcefully. Working on the basis of the then proposed Euro VI limits – which are effectively the same as the 2010 US legislation and due in force in 2013 – Ricardo, an extremely well-respected UK based consulting firm – argued that the fuel consumption penalty likely to be seen between Euro V and Euro VI, assuming a six-cylinder, 13-liter engine – similar to the MaxxForce 13 proposed by Navistar for deployment at 2010 – would be in the region of eight percent. At the time, we sought corroboration of this from then-technology head at MAN, Karl-Viktor Schaller, who regarded this as a conservative estimate.


Speaking to US trade magazine Transport Topics, in a report dated 24th November 2008, Navistar Engine Group Director of Marketing Tim Shick explained his company’s approach to 2010 compliance:


“It is correct that Navistar will not limit NOx emissions to the federally mandated limit of 0.2 grams per brake horsepower hour, as of January 2010,” Shick told TT. “We can meet 0.2 right now and with good performance if we wanted to. All of our volume engines today are operating at lower than ’07 engine requirements. That is how we’re earning the credits.”


Shick said that Navistar planned to use the credits, probably over two years, to “calibrate” its engine while it learns more about the engine’s operation to achieve optimum fuel efficiency and performance while meeting the NOx mandate.


Shick also commented in terms of fuel efficiency:


“Our 2010 engines will be fuel neutral to where we are today. The SCR people will argue that they will be able to use less fuel, and we don’t dispute that. We have tested SCR for some time, but we have seen a one-for-one trade-off in the amount of fuel saved versus the amount of urea used to reduce NOx.”


The Transport Topics interview represents the first direct claim by Navistar in term of the efficacy of its 2010 solution. However, that same 2010 solution was now limited to a single engine. Cummins’ decision to switch to SCR resulted in Navistar removing it from its 2010 options list – although the company continued to sell – and stockpile 2007-compliant Cummins engines – until the 01.01.2010 deadline – meant that Navistar now had very little by way of choice to offer it prospective, 2010 customers.


And Thus Begins the War of the Words


By now – Christmas 2008, and a year away from the implementation of the EPA 10 standard – Navistar was pulling very hard against the tide. It was faced with competing in a marketplace long dominated by incumbent Tier 1 engine suppliers, and populated predominately by 15-liter engines with a product possessed of – to North American eyes – an untested pedigree and an inadequate displacement (12.4 liters), and which existed in a minority of one. With this in mind, it is perhaps unsurprising that Navistar chose to come out fighting.


On January 5th 2009 during its Q4 2008 Earnings Call, Navistar sought to allay investor fears concerning the absence of a 15-liter engine. Ustian flagged up the availability of an EGR-based 15-liter product, but would not be drawn beyond this in terms of either timing or supplier, revealing only that more would be revealed at the Mid-America Truck Show held in March 2009.


Although deductive logic pointed to the adoption of a Caterpillar engine in some form, Navistar’s announcement of the MF 15 engine – which was accompanied by a computer-generated mock-up of the product – caused something of a stir. Caterpillar had, after all, made an ignominious showing at EPA 07, and Navistar’s ability to rescue the C15 from oblivion was questioned by many in attendance at Louisville.


But in hindsight, more significant than the announcement of the MF 15 – again, at a date tba – was Navistar’s confrontational approach towards anyone who would dare question its strategy.


This had been gathering some pace prior to MATS 2009; Jim Hebe’s assertion that truck drivers should wear respirators while handling DEF, made before an audience of Canadian trucking professionals on the 11th March 2009 set the tone for what was to become an increasingly fractious battle between Navistar and its competitors.


We see this as significant, simply because the truck industry is, in general, a fairly relaxed place. Those employed within it tend to move from company to company, and there exists – generally – both respect and affection within the business. While the OEMs are obviously in competition with each other, there has been, over the years, sufficient inter-breeding between them as to render outright hostility a rare occurrence. In this previously relaxed atmosphere, Navistar’s PR offensive seemed very much out of place, and suggested a company set firmly on the back foot.


MATS also produced some examples in which Navistar might reasonably be accused of shading the truth. One of the more constant claims being made to the public by Navistar employees was that which argued that European OEMs were moving towards the adoption of EGR for the “next European emissions level.” This was at best a misstatement, at worst an outright fabrication; with the previously referenced exception of Scania and MAN, both of whom at least planned to offer some EGR variants at Euro V, the European truck market was now dominated by SCR. Quite why Navistar chose to make this claim remains something of a mystery. As too was Dee Kapur’s claim – made to us during the course of the show – that Navistar would seek to solicit business from MAN in terms of supplying an EGR-equipped 13 and 15-liter engine to the European OEM. To this day, we remain mystified by this comment.


Despite Navistar’s best efforts in terms of talking up the prospects for EGR at the 2010 emissions level, it took serious damage on April 16th 2009, with MAN’s announcement that it would restrict its EGR offering to engines within its Medium Duty range, and to those with a power output of below 440 bhp. This news must have come as a severe blow to Warrenville’s increasingly frantic PR efforts.


We assume this to be the case for a very simple reason. Previously, Navistar had been in a minority of one in espousing EGR as a route to compliance with the 2010 legislation. Had Navistar been producing its own, proprietary engines, we might have been minded to give its claims some respect.


However, Navistar was not producing its own proprietary engine(s). Instead, it was proposing to re-engineer products rejected as unfit for purpose as EGR-based products by their respective, original manufacturers – MAN and Caterpillar. We were – and remain – deeply suspicious of Navistar’s claims in this regard. Its tenure in the Heavy Duty engine sector went back only to 2004, and for it to have produced market-acceptable, EPA 10 compliant engines from designs rejected by two companies with a wealth of experience within the sphere seems to be stretching the plausible to beyond breaking point.


A notable departure from Navistar during his period was Helmut Endres, the company’s VP Engineering, and an individual, we assume. Closely acquainted with Navistar’s 2010 strategy.


Endres’ departure was a surprise. Just two weeks previously, he had presented a paper at the Integer Research European Conference, a key event in the Heavy Truck calendar, and, during his time in Brussels, is reported not to have given any hint that he was about to leave Navistar’s employment. Navistar offered no official explanation for Endres’ departure, and he is reported to have returned to Germany as a result of homesickness. He had lived in Chicago for three years prior to its onset.


The Lawyers Get Involved


A cursory review of PACER records shows that Navistar is a keen and serial litigant, and so it came as little surprise that EPA 10 should end up before the courts. On May 4th 2009, Navistar filed a Petition for Review with the United States Court of Appeals for the District of Colombia Circuit, asking the Court to review the EPA's "Certification requirements for Heavy-Duty Diesel Engines Using Selective Catalytic Reduction (SCR) Technologies," in light of rules promulgated by the EPA in 2001. On June 2nd 2009, Daimler, Volvo and Cummins filed an Amicus Curiae motion in support of the EPA.

We provide links to the various court filings within the appendix, but one of Navistar’s accusations is worthy of examination. It alleged that, by:

"…. skipping the rigors of rulemaking means EPA and CARB have put the public at risk by allowing SCR on the highway now, when it may turn out that the cure is worse than the disease."

Once again, we have to question Navistar’s reasons for playing a public health card here. European workplace legislation is both strict and comprehensive, and it seems most unlikely that the European Union would have erred on anything but the side of caution in terms of allowing SCR to be deployed.

But Navistar’s claims to be seeking to protect public health degenerated into farce with the revelation that its Brazilian subsidiary MWM Motores was actively producing a SCR engine: the Euro IV-compliant NGD 9.3E. According to Navistar’s spokesman Roy Wiley, this engine was being produced as a result of a contractual obligation to VW. 

We have to take Wiley at his word here. However, it seems strange that VW should choose to offer a SCR-equipped engine to a market that does not move to Euro V before 2012, and which, according to Volvo, is, because of marked variance in fuel quality, one that is inappropriate for the adoption of SCR at present.

When we combine both the litigation and the MWM revelations, an interesting theory can be developed. Navistar may, at this point, have realized that further pursuit of an EGR-based 2010 strategy was worthless, and that it needed to adopt SCR. Because of its wild PR claims, doing so voluntarily would have led to almost universal ridicule, and so – by our analysis – it may be that Navistar was in fact hoping to lose its action against the EPA. By doing so, it could perform an about-turn while laying the blame at the feet of the legislators rather than its own miscalculations. Such a move would mitigate – at least in part – the likely PR furore that would have resulted from Navistar adopting SCR. As such, the development of a SCR engine by a Latin American subsidiary – an engine that, according to other OEMs was inappropriate for the Latin American market, and one that was not required as a result of any legislative demand – may have had more to do with Navistar attempting to develop the technology necessary to effect a strategy change.

With the exception of CRO William Caton’s somewhat abrupt departure in October 2009, little else of note happened until December 1st, when, after eight months of pre-litigation wrangling, Navistar filed its Petition for Review of the Final Actions of the EPA, once again alleging that SCR technology posed a substantial and unreasonable health risk to the public. This is referenced in the Appendix, and we would draw readers’ attention in particular to Pages 34 and 35.

And so to the Present.

The presence of a reasonable population of transition engines meant that EPA 10, while technically coming into force on January 1st 2010, was unlikely to begin to impact the market at least for the first quarter. Transition inventory is a thorny topic; by the letter of the law, any vehicle ordered after the 1st January deadline needs to comply with the 2010 emissions legislation. Obviously, there is a lag period between order and delivery, and so we might have expected to see a transition period of no more than a single quarter. While there was a slight pre-buy ahead of the 2010 change, it was not so great as to cause supply problems, and deliveries of SCR-equipped 2010-compliant vehicles began in earnest during Q2 2010.

Navistar’s EGR engines were a rather more rare sight. In a move that served to infuriate both competing OEMs and, to a lesser extent, the EPA, Navistar had stockpiled a large number of 2007-compliant Cummins engines, and it continued to ship new trucks thus equipped through the first two Quarters.

Why should this be? After all, Navistar had been at pains to point out that its EGR solution in 2010-compliant guise was one that stood head and shoulders above that offered by any other OEM. That it should be so reticent in terms of the supply of the same is noteworthy.

Equally noteworthy is the speed with which Navistar settled its dispute with both the EPA and with CARB. A number of lawyers had worked long hour on this, and yet Navistar withdrew its action on the basis that both CARB and the EPA would hold public meetings in order to discuss issues arising from Navistar’s expressed concerns. If this was a victory, it was surely one that was entirely pyrrhic.

This Week

As we prepare this report, news reaches us of a number of problems with the MF 13 engine. One industry source reports that Navistar is now backtracking on its September delivery commitments, citing “unspecified electronic calibration issues.” This report has been partially corroborated by another source which points to a Navistar dealer with a MF 13-equipped Prostar on order, and due for delivery on July 1st. As of the date that this report is being prepared – August 17th – this truck has yet to be released to its delivery carrier, despite being built in May.

Other industry reports suggest that Navistar is experiencing significant catalyst regeneration problems with MF 13, claiming that regeneration is occurring so harshly that both catalysts and particulate filters are over heating and, in some cases, cracking. There is a rumor that Navistar may have to deploy some form of water-cooling in order to cool down the exhaust systems, although we have been unable to confirm this as yet.

But perhaps of most concern is the news that reaches us of a stop order going out to Navistar’s supplier base, who, we are told, have been requested not to ship next week (w/c 08.22.2010). The reason, we are told, for this order, is that Navistar lacks the engines with which to build its trucks. Whether or not this means that it has – finally – exhausted its supply of 2007 Cummins engines, or merely that it lacks either orders for or functional versions of the MF 13 engine remain unclear. If this report is correct – and it comes from an industry source in which we have complete confidence – Navistar is now staring into the abyss.




Chapter 4

The Future and Some Conclusions

We regard Navistar’s position in the global Commercial Vehicle Industry as of the time of writing as being tenuous. It has bet big on an inappropriate technology, and will reap the consequences of this move.

Why did this happen? In part, we suspect that Navistar saw that which it wanted to see in Europe, but failed to pay sufficient attention to that which it needed to see.

We regard the likely adoption rate of Navistar’s EGR product as being minimal. Because it chose not to supply the market in a timely manner, the sale of every SCR unit counts as doubly zero-sum against Navistar. Not only does each incremental sale of an SCR-equipped truck serve to legitimize the technology in the eyes of future buyers, an uncomfortable fact of the North American truck market is that it has a ceiling. As each SCR truck is sold in North America, so the addressable market for EGR trucks is reduced. The longer Navistar fails to deliver, the more pronounced this problem becomes.

But central to the crisis – and we use the word after careful consideration – is an issue that is as much philosophical as it is located in truck industry mores. Trucks serve a derived demand – namely road transport – and, as such, are acquired on the basis of commodity. Commodity demand precludes all but the most necessary technological innovation; truck buyers demand compliance and efficiency, and an elegant solution is not necessarily an appropriate solution. As such, as SCR becomes the emissions compliance solution of choice among not just European truck operators, but those based in North America and Japan – and, in a few months, Australia and Brazil – Navistar’s argument that a more appropriate technology will emerge becomes one that is null and void. SCR is the wheel; it is not perfect, but there seems little reason to reinvent it. As such, the investment made in Danish solid SCR supplier Amminex looks to be a pointless move. Furthermore, with the North American legislative environment now looking to favor CO2 reduction – following the Administration’s issuing of the Presidential Memorandum on “Improving Energy Security, American Competitiveness and Job Creation, and Environmental Protection through a Transformation of our Nation's Fleet of Cars and Trucks” on May 21st 2010 - any emissions compliance solution that fails to be fuel consumption positive is one that cannot work.


Navistar seems to be already laying the ground for a change of course. In his submission to Docket No NHTSA-2010-0079, Navistar VP Government Relations Patrick Charbonneau, appears to endorse the efficacy of SCR, saying that:

“… the use of selective catalytic reduction (SCR) as a method for NOx control has allowed certain manufacturers to reduce the rate of exhaust gas recirculation, another method of NOx control. The reduction of exhaust gas recirculation creates fuel efficiency gains, but may raise the level of NOx in the exhaust stream out of the engine. These SCR systems then reduce higher engine-out NOx emissions in the exhaust stream through the use of an aftertreatment system involving the injection of a reductant, most commonly urea, and a catalyst.”

This is a statement that remains at odds with Navistar’s current public pronouncements, but suggests that wiser counsels may now be prevailing in Warrenville.

We suspect, however, that the damage is done. As the military business is not our area of expertise, we have deliberately omitted discussion of its impact upon Navistar’s fortunes over the period under review. That being said, the appetite for increased military expenditure seems to be lessening, and so the revenues accruing to Navistar from this division will likely diminish over the coming months. With reduced military revenues and a truck that few people seem willing to buy, the future looks very bleak indeed.

Can Navistar escape Chapter 11? It seems a pertinent question; the most obvious escape route for Navistar would be acquisition followed by a wholesale adjustment to senior management. We regard Mahindra & Mahindra as the most likely buyer, but we cannot see any attraction in Navistar prior to a laundering through the bankruptcy courts.

Navistar’s approach to EPA 10 has been characterized by a combination of bad judgment and breathtaking hubris. For it to survive in any form, it needs a seismic event in order that it may draw a line under previous errors. Whether or not Chapter 11 offers such an opportunity remains to be seen. We suspect that we will soon be in a position to tell.




Navistar’s EPA 2010 Strategy: a Chronology


May 14 2001: Navistar suspends negotiations with Cummins for a development and manufacturing JV for HD engines.


December 21 2001: Navistar suspends negotiations with Volvo AB for HD engine supply.


January 1 2004: Implementation of EPA 2004 HD Standard


December 6 2004: MAN Nutzfahrzeuge AG and Navistar International announce a strategic agreement to collaborate on design, development, sourcing and manufacturing of components and systems for commercial vehicles, including a range of diesel engines.


January 1 2005: Germany introduces LKW-MAUT road pricing.


May 1 2005: Navistar acquires MWM Motores in Brazil.


June 14 2005: Navistar truck brand International signs 49:51 percent JV with Mahindra & Mahindra to build 50,000 trucks and buses per year for Indian market.


October 1 2005: Implementation of Euro IV HD Standard.


July 5 2006: Helmut Endres joins Navistar from VW as VP Engineering.


September 18 2006: MAN tables $12.2 billion bid for Scania.


December 6 2006: MAN denies any intention to acquire a stake in Navistar, following previous media speculation (Dagens Industri 5.25.06) that such a move was likely. Frankfurter Allegmeine Zeitung cites MAN CEO Håkan Samuelsson as saying:


“I have said we are open for a deepening of cooperation with Navistar. A shareholding is possible, but not in the company itself but in joint projects.”


December 15 2006: Ustian appears to solicit investment in Navistar, saying to analysts:


“If you’ve got a lot of money, come over and see us.”


January 1 2007: Implementation of EPA 2007 HD standard.


January 11 2007:  Ford sues Navistar over pricing and warranty issues involved in their engine contract.


February 7 2007: Navistar is delisted from NYSE.


February 26 2007: Navistar suspends production of Ford Powerstroke engines while lawsuit by Ford is pending.


March 1 2007: Ford seeks court intervention in its suit to maintain status quo on contracted-for production; a TRO is granted against Navistar, requiring Navistar to resume production and shipping of diesel engines to Ford’s Louisville plant.


March 8 2007: An agreed TRO requires Navistar to continue shipments of engines to Ford.


March 8 2007: Mercedes-Benz UK questions claims made by MAN in terms of the efficacy of EGR. Nick Blake, from Mercedes-Benz’s Truck Marketing and Sales Engineering division, questions whether MAN really believes that EGR produces five percent lower CO2 emission and uses five percent less fuel. Speaking to UK trade title Commercial Motor, he says:


“The figures don’t stack up. For every liter of diesel burnt EGR produces 2.63kg of CO2.It is a fact that EGR produces 35 percent more NOx than SCR.”


Blake also says that MAN is misleading the industry by quoting much too high a figure for DEF usage. MAN claims that a truck will use 17,000 liters of DEF over a five-year period, whereas Mercedes Benz quotes a figure of 5,444 liters.


April 21 2007: Volvo announces availability of 13-liter Euro IV EGR engine for select European markets.


May 2 2007: Navistar counterclaims against Ford in the Michigan suit, alleging breaches of contract.


May 3 2007: Ramin Younessi joins Navistar from Freightliner, and takes on role of VP Strategy and Operations. Younessi’s role at Freightliner had been as general manager and chief engineer of product validation.


May 14 2007: Media reports suggest that GM may sell its MD Business to Navistar.


October 31 2007: Navistar is the first North American OEM to declare its hand in terms of compliance strategy for the 2010 legislation. The company issues a press release citing CEO Daniel Ustian:


“I have publicly been an advocate of customer friendly emissions control solutions which do not add additional costs to our truck and bus customers. While SCR is a means to achieve the NOx reduction requirement for 2010, it comes with a steep cost to our customers. Our ability to achieve our goals without adding customer cost and inconvenience is a competitive advantage for International.”


November 2 2007: Navistar enters JV with Mahindra & Mahindra for diesel engine supply to Indian market.


December 14 2007: Volvo’s D13 EGR Euro IV engine is reported to be more fuel-efficient than the Volvo SCR 13-liter engine by UK truck operator Boughey Distribution.


January 29 2008: Caterpillar signals exit from North American on-highway engine supply business.


April 14 2008: Jim Hebe joins Navistar as VP North American Sales Operations.


June 12 2008: Caterpillar announces withdrawal from North American on-highway truck engine business.


June 12 2008: Navistar and Caterpillar announce Strategic Alliance for global truck and engine business development. The press release cites Douglas R. Oberhelman, Caterpillar Group President:


“In the past 15 years, Cat has become significantly less dependent on the sale of on-highway truck engines in the total contribution of our global engine profitability. Our global power systems business has grown significantly—in fact we supply approximately 400,000 diesel engines annually outside of the on-highway truck market. We intend to remain the world leader in clean diesel engines, and this collaboration is a key enabler.”


June 16 2008: Cummins confirms extension of supply agreement with Navistar for 15 and 16-liter engines for North America. The press release includes the statement:

“As previously announced, Cummins will meet the 2010 EPA requirements on its heavy-duty engines without aftertreatment for oxides of nitrogen (NOx). Cummins engines in 2010 will incorporate an integrated technology solution that includes the XPI High Pressure Common Rail (HPCR) fuel system, next generation Cooled Exhaust Gas Recirculation (EGR), advanced electronic controls, proven air handling and the Cummins Particulate Filter. Cummins leads the U.S. on-highway truck market with cooled EGR technology, which reduces emissions and NOx. The next generation EGR does not add complexity to the vehicle, yet power, torque, fuel economy and maintenance intervals will remain the same as today. Cummins engines will be fully certified and compliant to the near-zero EPA 2010 emissions standards.”

June 30 2008: Navistar returns to NYSE.

August 1 2008: Helmut Endres acknowledges that EGR engines may experience both heat and soot issues. Fleetowner Magazine reports:

“Endres says Navistar's evolution of its EGR technology package to meet the 2010 emissions standards generates higher levels of engine heat, requiring more cooling. But overall, Endres notes that few major changes are foreseen for either Navistar's trucks or engines at this point to comply with the 2010 regulations. “For most of our mainstream truck products, this extra cooling capacity fits within the existing engine compartment space on our trucks, so no design changes are needed,” he says. “Only for some extreme models, such as severe service, are any changes needed to handle the extra cooling.


“A big focus of the field test going forward is to find ways to lengthen the replacement interval for the DPF, which captures particulate matter generated by engine combustion. To meet the 2010 rules, MaxxForce is lowering the amount of oxides of nitrogen (NOx) produced by the engine, which means subsequently that more particulate matter is produced. ‘Our testing is looking for ways to boost DPF capacity so it can handle more soot; that is the main focus of our field work now,’ Endres says.


“Summer testing so far in high heat conditions — conducted in Las Vegas, NV, and other desert areas of the U.S. — revealed no major concerns or surprises, he adds, noting that such high-heat operation posed the biggest challenge for Navistar's 2010 solution. ‘It's much more difficult for us in the heat as opposed to cold-weather operation,’ Endres says. ‘We're preparing for winter testing now, and I think that will be much easier for our package to handle.’”


August 13 2008: Cummins reverses its previous strategy, and announces that it will adopt SCR technology across its complete North American HD engine range.


September 3 2008: Ricardo publishes research suggesting a fuel penalty at Euro VI of eight percent when compared with Euro V using a 12-liter, six- cylinder engine.


September 12 2008: Navistar fined $281,000 by CARB for Clean-Air violations.


October 1 2008: Implementation of Euro V HD standard.


November 24 2008: Navistar reveals that it will employ EPA Credits in order to comply with the 2010 legislation.


January 5 2009: Navistar announces future availability of a 15-liter EGR engine during Q4 Earnings Call.


January 14 2009: As part of the resolution of Ford’s suit against Navistar, Navistar and Ford agree to end engine supply agreement.


March 11 2009: Today’s Trucking reports claims made by Jim Hebe to an audience of trucking professionals that drivers ought to wear respirators when handling urea.


March 19 2009: Dee Kapur claims at MATS that Navistar will seek export opportunities for MF 13 and 15 back to MAN for Euro VI. MAN denies any such plans, citing fuel consumption issues.  Other unnamed Navistar employees claim that European OEMs are moving towards the wholesale adoption of EGR for the “next emissions level,” a statement that is at best erroneous and at worst flagrantly dishonest.


March 26 2009: Navistar Issues Non-Binding Letter of Intent for Purchase of Certain Monaco Coach Assets.


April 6 2009: Navistar and Caterpillar sign “definitive agreement to produce Caterpillar heavy-duty vocational trucks for sale in North America and form a 50/50 joint venture (NC2) that will pursue global commercial truck opportunities outside of North America.”


April 16 2009: MAN announces that it will deploy its EGR-only solution up to 440 bhp, and that SCR will be used for engines (D26) with power outputs in excess of this figure.

May 4 2009: Navistar files a Petition for Review with the United States Court of Appeals for the District of Colombia Circuit, asking the Court to review the EPA's "Certification requirements for Heavy-Duty Diesel Engines Using Selective Catalytic Reduction (SCR) Technologies," in light of rules promulgated by the EPA in 2001.

May 16 2009: Today’s Trucking confirms that Navistar’s 15-liter engine will be based upon Caterpillar’s C15 design

May 24 2009: First publication of the Navistar’s Spiral of Despair saga on the World Trucks Blog

June 2 2009: Daimler, Volvo and Cummins file an Amicus Curiae Motion in support of the EPA.

June 10 2009: Navistar files response to Amicus Curiae Motion. Independent legal opinion sought by World Trucks Analysis comments:

"The Response in Opposition ("Response") swings wildly from allegation to allegation, accusing Volvo, Daimler, Detroit Diesel, and Cummins of everything but firing from the grassy knoll. 


“NAV first accuses the "SCR Manufacturers" of urging the EPA to change its position regarding SCR and operating "in secret" to "convince" the EPA to act illegally.  NAV then later accuses the "SCR Manufacturers" and the EPA of collusion and/or conspiracy, stating that the  "SCR Manufacturers"--some of the largest truck manufacturers in the world--had themselves created the EPA's guidance regarding the previously propounded rules--but that this creation or its use is somehow illegal.  In effect, NAV accuses the "SCR Manufacturers" of subverting the EPA and the U.S. government from its mission to protect the world's air quality. Because Conspiracy is defined as a meeting of the minds of two or more persons to engage in illegal acts, and because the acts of any of the Conspirators are imputed to the others, the EPA and the "SCR Manufacturers" are all in the same boat.


“One priceless jewel is the citation from Volvo's website, where Volvo states that the use of a selective catalytic chamber that would remove NOx emissions would allow for engines that produced higher NOx, apparently intending the claim to support SCR technology.  NAV takes the single sentence out of context and further twists the statement to mean that Volvo is disclosing that higher NOx will result after the SCR process has taken place, or at the very least will allow Volvo to create engines that produce more NOx.  (To my knowledge, the amount of NOx produced by an engine is not the subject of any regulation--as long as it doesn't come out of the tailpipe.  But I will, of course, bow to the experts.)


“On a legal level, the Response is both inappropriate and does not comply with the Federal Rules of Civil Procedure.  NAV purports to be opposing the Motion for Leave, but is using the Response to propound an expert opinion--without any expert evidence.  (It can do this later, of course, but this is not the appropriate venue.)  Its Response is full of further allegations regarding the EPA--which will most likely come out swinging--and dire promises of what NAV will show regarding the conspiracy in which the EPA participated.  NAV accuses the "SCR Manufacturers" of--wait for it--actually lobbying the government for SCR technology in March 2007.  NAV itself did not make the decision to choose EGR over SCR until late 2007.  NAV's Response reads like the whine of a child who was shorted on candy--when the child failed to ask for the candy at all.  In short, NAV's desperation bleeds through every word in this Response--and frankly, proves the claim of interest in the Court's eventual decision by the "SCR Manufacturers" better than they did themselves."

June 15 2009: The Amici Curiae group files response to Navistar’s objections.

June 23 2009: Helmut Endres presents paper to Diesel Emissions Conference in Brussels.

July 7 2009: Karl-Viktor Schaller, architect of MAN’s engine strategy, leaves the company.

July 15 2009: Helmut Endres leaves Navistar, seemingly with immediate effect.

July 28 2009: Navistar announces EPA 10 pricing, with increases of between $6-8,000 depending on model.

July 30 2009: In its Reply to its own motion to strike the EPA’s certified amended index to the administrative record, Navistar further accuses the EPA and CARB of subjecting the public to deadly toxins by allowing the SCR Manufacturers to utilize the SCR technology.

August 10 2009: CARB accuses Navistar of a “blatant misrepresentation” following Navistar’s July 30th Reply, which cites Bart Croes, chief of CARB Research in a letter addressed to the Health Effects Institute. Navistar contends that the contents of the letter demonstrates that:

"…. skipping the rigors of rulemaking means EPA and CARB have put the public at risk by allowing SCR on the highway now, when it may turn out that the cure is worse than the disease."

August 18 2009: reveals that Navistar Brazilian subsidiary MWM Motores is producing an SCR-equipped engine for the Latin American market.   Navistar and its litigation counsel decline to return calls for comment.

August 25 2009: Today’s Trucking publishes comments from Navistar spokesman Roy Wiley that seek to justify its deployment of SCR in Latin America by claiming that Navistar was only complying with its contractual obligations.

September 28 2009: NC2 and Anhui Jianghuai Automobile Co sign a framework agreement to potentially establish a joint venture in China which would develop, manufacture and sell trucks and truck parts primarily in China and certain export markets.

October 16 2009: William Caton, Navistar’s Chief Risk Officer, retires with two weeks notice. Compliance Week had previously described Caton’s duties:

William Caton is executive vice president and chief risk officer for Navistar International Corp. Previously the chief financial officer, Caton also serves on the company's executive council, which is responsible for management's strategic direction. As chief risk officer, he is responsible for assessing and planning for potential strategic, operational, financial, and compliance-related risks. He also helps minimize the company's liability and related management costs, and is responsible for coordinating Navistar's enterprise risk management (ERM) approach. Prior to joining Navistar, Caton was vice president and chief financial officer of Dover Diversified Inc, a subsidiary of Dover Corp. He has also held financial posts at 3M Co., Pillsbury, and VICORP.

November 9 2009: Volvo D13 certified by CARB at 0.2 NOx.

November 9 2009: Volvo D11 certified by CARB at 0.2 NOx.

December 1 2009: After eight months of pre-litigation wrangling, Navistar files Petition for Review of Final Actions of the EPA, stating again that the SCR technology poses a substantial and unreasonable health risk to the public.

December 2 2009: Navistar signs JV with MODEC to create Navistar-Modec EV Alliance LLC.

December 21 2009: Navistar makes undisclosed investment in Amminex A/S.

January 1 2010: Implementation of EPA 2010 HD standard

January 6 2010: Cummins ISX 15 certified by CARB at 0.35 NOx

January 8 2010: WSJ reports that Mahindra may use Navistar plant to produce Scorpio LCV product for North American market.

February 4 2010: Detroit Diesel DD13 certified by CARB at 0.2 NOx.

February 4 2010: Detroit Diesel DD15 certified by CARB at 0.2 NOx

February 4 2010: Detroit Diesel DD16 certified by CARB at 0.2 NOx

February 5 2010: Navistar and Anhui Jianghuai Automobile reported to be discussing engine Joint Venture

March 8 2010: Dutch government questions efficacy of Euro V engines in an urban environment, claiming that "inadequate engine calibration software", will make it hard for it and other countries to meet pollution-reduction targets.

March 10 2010: Ustian claims 1500 orders for EPA 10-compliant MaxxForce 13 engines during Q1 Earnings Call. He also remarks that Cummins transition engines will run through until June 2010, and that the 15-liter engine will launch in October 2010

March 30 2010: OEMs receive formal request from the EPA for Section 208 responses, with a deadline for responses of 05.01.10.

April 8 2010: Navistar MaxxForce 13 certified by CARB at 0.5 NOx.

April 21 2010: Morgan Joseph initiates coverage on Navistar with sell rating, arguing that:

“Navistar's management seems oblivious to the fundamental flaws, and the consequent risk, in its strategy for manufacturing its own heavy-duty EGR engines. Non-compliant with the new 2010 NOx regulations, the engines can only be sold using credits amassed over the years, but these credits are expected to run out soon. There appears to be no path to make the motors genuinely compliant and we believe they are likely to be more prone to breaking down and raise warranty costs. And they aren't scalable to deal with additional EPA laws that appear imminent."

April 22 2010: Navistar withdraws lawsuit against CARB after CARB agrees to convene public workshop to address issues raised by Navistar.

May 4 2010: Navistar reaches agreement with the EPA, and drops is lawsuit against the agency on the basis that a public hearing is held in order to discuss SCR-equipped diesel engines.

May 21 2010: Administration issues the Presidential Memorandum on “Improving Energy Security, American Competitiveness and Job Creation, and Environmental Protection through a Transformation of our Nation's Fleet of Cars and Trucks”,


May 28 2010: PACCAR MX certified by CARB at 0.2 NOx.

June 9 2010: Scania confirms adoption of SCR + EGR solution for Euro VI. Navistar is now the only Triad-based OEM pursuing compliance at EPA10 / Euro VI / JP09 levels with in cylinder treatment.

June 9 2010: Navistar provides additional guidance regarding the development of solid SCR systems and the availability of credits. Responding to analyst questions at the Q2 Earnings Call, Ustian states:

“We’ve said our strategy is to have a customer friendly answer for emissions and that continues to be the same for us, and so far we’ve been able to meet emissions through combustions and that really is where we want to go on a long-term basis as well. We also want to be responsible for meeting emissions, and no matter what we do here, the best answer is always going to be through combustion, and we have engines running, we have vehicles running that meet those standards of 0.2 [NOx].

“Without degradation [sic] fuel by the way. In fact, you can see us get better in fuel as we move forward. The question has always been in time. When will we have enough credits and when will we need to get this application started for 2010 emissions at 0.2. So, the low variable here is and we have anywhere from 2 to 5 or 6 years before we need to get to the point to. We have enough credits to extend it further. The variable here is how successful we are with our own emissions.

“How successful we are at selling some products that use some of the credits up. So at best case we’re very successful. We’ll need 2 plus years before we launch these, and so what we need is to have an answer that’s ready for 0.2 in 2 plus years, and that we have two strategies for that. One as I mentioned is still combustion. The other one is through this what we call EGNR and what that does is it is a pack. It’s a very dense pack of a powder that acts like an ammonia base and it burns off when it’s mixed in the exhaust.

“It’s very much more efficient than ammonia that’s used in SCR, it burns quick. Everything is a closed loop system. It does not degradate in temperatures and it’s ready to go as soon as you install it. It’s not rocket science. It’s just, it’s after treatment that works very effectively. Where will we use that is still hard to say. We will have to make this decision for a while, but ultimately you can imagine we want to do combustion wherever we can. One of the other things that it does is if we do this and we will do it on some applications this EGNR. It needs to last through the oil changes. So, whenever we change this little cartridge, we’ll have to change that cartridge at oil change intervals and that’s the strategy, but realistically we like to have combustion be the answer. It’s still the best answer, we know we can do it, question is time.”

June 10 2010: Volvo D16 certified by CARB at 0.2 NOx.

July 14 2010: Navistar VP Government Relations Patrick Charbonneau, in his comments to Docket No. NHTSA-2010-0079 appears to endorse the efficacy of SCR, saying that:

“… the use of selective catalytic reduction (SCR) as a method for NOx control has allowed certain manufacturers to reduce the rate of exhaust gas recirculation, another method of NOx control. The reduction of exhaust gas recirculation creates fuel efficiency gains, but may raise the level of NOx in the exhaust stream out of the engine. These SCR systems then reduce higher engine-out NOx emissions in the exhaust stream through the use of an aftertreatment system involving the injection of a reductant, most commonly urea, and a catalyst.”

June 15 2010: Morgan Joseph reiterates Sell rating on Navistar, saying:

“We remain skeptical of the company's outlook for the balance of this year and beyond due to the choice of EGR for its heavy trucks. The Class 8 market is starting to heat up, and we estimate, to maintain its normal share (and we're just thinking 13-liters - the 15-liters won't be ready until early 2011, according to management), NAV needs to be building 140-150 engines/day at Huntsville by the end of September (versus zero when we drove around in April), which is an enormous undertaking for manufacturing. Not to mention that these engines have to be built right and also have to work on the road. We anticipate a very hot autumn in Alabama. We believe that it is dubious to think that Navistar can "perfect" its EGR engine, especially in light of "fuel-efficiency standards" that even management on the call acknowledged are coming courtesy of the EPA."

July 17 2010: Powertorque reveals that NC2 launch in Australia is to be delayed.

July 19 2010: Navistar claims “Fluid economy” leadership through EGR in tests regarded with distinct suspicion by many within the trucking industry.

July 20 2010: CARB convenes public meeting following Navistar’s April 22nd decision to withdraw suit.

July 23 2010: DTNA lambasts Navistar’s Fluid economy claims.

August 4 2010: JP Morgan downgrades Navistar from Neutral to Underweight on market share concerns.

August 15 2010: SEC claws back $1.3 million from Daniel Ustian and $1 million from Robert Lannert following earnings misstatement.

August 10 2010: Morgan Joseph maintains Sell rating, lowers TP to $27 from $36.

August 10 2010: We receives information from industry sources that Navistar is backtracking on September truck deliveries, citing “electronic calibration issues”. This information is corroborated from another source citing a dual brand dealership awaiting delivery of a Prostar truck equipped with a MF 13 engine, with a build date of May 2010 and a delivery date of 1 July 2010 has yet to be released to the carrier. WTA also receives information pointing to significant problems with regeneration of MF 13 catalysts, with the report citing overheating and possible cracking of the catalyst. Navistar rumored to be considering the deployment of water-cooling for exhaust systems as a result of this problem. WTA will carry this story in the September issue.



Are you ready for the Olympics?

Transport for London (TfL) is conducting a survey to assess how businesses and freight operators are adapting to cope with the expected impact of the Olympic and Paralympic Games.

TfL is keen to hear how haulage and logistics operators based in London or doing business in the capital are getting ready for the London 2012 Games, which run from 27 July through to 9 September 2012.

“The freight industry’s feedback will enable us to continue to provide useful information to help businesses effectively manage the demand for delivery and servicing activity in London during this time, while allowing the capital to continue to function effectively,” says TfL.

There will be a further two surveys – one during the Games and one after – and the results will be used to provide evidence of how well key information was communicated and received by the industry, and may help influence development of future freight policy for London.

Go to to take part in the survey. The closing date is 23 July.