October 5, 2012 / 12:47 AM / 8 years ago

Navistar may ax plants in new CEO's cost push

LISLE, Illinois (Reuters) - Embattled U.S. truck and engine maker Navistar International Corp (NAV.N) is cutting administrative and engineering spending and may close factories as it lowers costs, the company’s newly named chief executive said on Thursday.

Navistar CEO Lewis Campbell speaks during an interview at the Navistar office in Lisle, Illinois, October 4, 2012. REUTERS/Jim Young

The maker of International-brand trucks is reviewing all operations beyond its core North American truck and parts business to see whether any need to be fixed, sold or closed, as it seeks to revive profits, CEO Lewis Campbell said in his first interview since taking the reins at Navistar on August 27.

Navistar has largely completed a wave of white-collar layoffs and buyouts that led to about 800 job cuts. It is also reducing engineering spending by 28 percent, and will review whether it needs all 19 of its North American factories at a time when a shaky U.S. economy is hitting demand for trucks.

“More than likely we’ll have to adjust our footprint. And we’re ready to do that,” said Campbell. “Since I’ve been here we’ve taken every single element of cost and said, ‘Is that where we want to be two years from now, one year from now?’ And if it’s not, let’s get a project in place to do something about it.”

Navistar shares have tumbled some 32 percent over the past year as the company struggled to win U.S. regulatory approval for a new style of diesel engine. It ended the effort in July and chose to adopt the engine technology used by rivals such as Paccar Inc (PCAR.O) and Volvo AB (VOLVb.ST).

The Lisle, Illinois-based company, which also makes Monaco recreational vehicles, school buses and military vehicles, lost $241 million through the first nine months of its fiscal year ending October 31, after charges of more than $200 million to repair engines made in 2010 and 2011.

Analysts do not expect Navistar to return to profitability until the third quarter of fiscal 2013, according to Thomson Reuters I/B/E/S. Navistar had 19,000 employees at the end of its last fiscal year.


Navistar has already identified operations that generate $260 million worth of revenue that it could close, fix or sell, leading to an estimated profit boost of about $52 million.

It aims to complete identifying such businesses and projects by the end of the year, Campbell said. The list could include operations that generate about 10 to 15 percent of Navistar’s estimated 2012 revenue of $12.9 billion, he said, noting that the range was “more a feeling in my gut than knowledge.”

One project already slated for elimination is the largest version of the engine that failed to win EPA approval. Navistar instead plans to buy those 15 liter engines from Cummins Inc (CMI.N). Navistar expects to sign a supply contract for those engines with Cummins by the end of the month. It will also use Cummins’ technology on its smaller 11- and 13-liter engines, Campbell said.

A Cummins spokeswoman was not immediately able to confirm that agreement.

“It’ll get rid of distractions so that the whole company can work on the stuff that’s more important,” Campbell said. The company has already decided not to sell its military-trucks unit, he noted.

Analysts have cited the Monaco Coach unit, as well as some of Navistar’s foreign operations, as among businesses that could be sold.


Campbell’s focus in his first five weeks on the job has been to trim costs. He said Navistar had already taken cost-cutting steps that will lower its annual selling, general and administrative expenses by $150 million to $175 million.

That contrasts with his predecessor, Daniel Ustian, a 37-year Navistar veteran whom the board had ousted to bring in Campbell, said Morningstar analyst Basili Alukos.

“Ustian realized that we have a cost structure that’s too high, we need to expand to be profitable. And that’s why they went to all these different product lines. They went after defense, internationally,” Alukos said. “Campbell appears to be taking the opposite approach. ... We need to pare back, we need to get our returns up.”


Campbell, 66, was hired as interim CEO and executive chairman, and plans to stay on as CEO for two to three years, he said.

“I really think you can turn this company around in 12 to 18 months,” said Campbell, who this week closed on the purchase of a house in the Chicago area, where he will live with his wife.

Campbell spent 17 years at Textron and before that more than two decades at General Motors Co (GM.N). At the time he was named CEO - a job he holds on an interim basis - Navistar promoted another former GM executive, Troy Clarke, to the new role of chief operating officer.


Navistar’s stock slump has drawn the interest of activist investors Carl Icahn and MHR Fund Management, run by Mark Rachesky. Each investor owns a 14.94 percent stake in the company, tying them as its second-largest investors. The stakes are just shy of the 15 percent mark that would trigger the poison pill the Navistar board adopted in June.

The company’s largest investor is Franklin Templeton Resources (BEN.N), which holds a 16.34 percent stake it accumulated before the poison pill took effect.

Icahn last month blasted the board’s decision to hire Campbell, saying its action was “worse than ill-advised” and that he had not been consulted.

Campbell declined to say whether he had spoken with any of those big shareholders, saying only that “our total focus is to align our actions with what maximizes shareholder value.”

Other observers have been more open to Campbell’s focus on controlling costs.

“This is not the time for ego; this is the time to act,” said Vicki Bryan, credit analyst at Gimme Credit. “He’s not acting like he’s here to build an empire. He’s here to fix it. That’s what it’s looking like to me.”

Navistar shares rose 1.5 percent to $21.31 on the New York Stock Exchange late Thursday afternoon.

Additional reporting by Lynn Adler in New York; Editing by Leslie Gevirtz, Richard Chang and Ken Wills

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