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SPECIAL REPORT: Navistar’s new path

LISLE, Ill. -- A bold bid to establish a “sustained, product-based differentiation” within the marketplace fell short as Navistar International announced last month it would add selective catalytic reduction (SCR) exhaust...

LISLE, Ill. — A bold bid to establish a “sustained, product-based differentiation” within the marketplace fell short as Navistar International announced last month it would add selective catalytic reduction (SCR) exhaust aftertreatment to its engine line.

Navistar had originally committed itself to achieving EPA2010 emissions standards using only advanced exhaust gas recirculation (A-EGR), while all its competitors chose to pursue SCR, which requires the use of urea-based diesel exhaust fluid.

During a candid discussion with trade press journalists at Navistar’s Lisle, Ill. headquarters, Jack Allen, president of the North American Truck Group, said the company was forced to change its emissions strategy when it became clear it would be unable to certify its 13-litre Advanced-EGR MaxxForce engine before cashing in the last of its emissions credits. Credits were earned for producing engines that were cleaner than required under previous emissions standards, but those credits ran perilously low before the company was able to certify it’s A-EGR engines at 0.2 grams NOx.

“That’s really where the wheels came off the cart,” Allen said. “It’s not in the technology; it’s really in the timing of that technology being ready versus when the credits were going to run out. We got to the point in the intersection where those two factors were coming together like a freight train.”

Allen lamented, “It looks like we’ll never know if the technology and the credits would have lined up.”

Navistar’s initial decision to take a different approach to EPA2010 emissions standards than all its competitors was borne from a desire to achieve a long-term differentiation in the marketplace, Allen explained.

“The real key is, you have to provide an advantage for yourself but you also have to provide an advantage for the customer or the formula doesn’t work. When we looked at 2010 emissions, we thought there was a way to have a sustained competitive advantage with a non-urea engine,” Allen recalled. “We really believed we had the opportunity to get there from a differentiation standpoint, and we think it would’ve been good for our customers to have a system that didn’t require SCR and that provided a lower operating cost.”

Moving forward, Navistar International says it will pay non-conformance penalties while also redeeming its remaining emissions credits until it’s ready to roll out its new ICT+ (In-Cylinder Technology Plus) solution next May. ICT+ combines Navistar’s in-cylinder emissions technologies with proven selective catalytic reduction (SCR), which will be supplied by Cummins. It will also offer International trucks with the Cummins ISX15 engine as early as January. How much those non-conformance penalties will cost is anyone’s guess. The EPA has assembled its final rule, which is currently sitting on a desk in the White House, where such proposals are reviewed for their economic impact. Allen said Navistar has secured a $1-billion loan and remains confident the production and sales of its engines into the North American market will go uninterrupted when the new penalties are revealed, likely in 30-60 days.

“We continue to expect there’s not going to be any interruption in our production,” Allen said. “We’ll go from building trucks with the interim NCPs to building trucks with the final NCPs until we get to the point where our SCR system is integrated into all of our products. By our projection, we have enough credits to get us into next year, certainly until the other side of when the Cummins engine will be available (in January).”

As for its relationship with Cummins, Allen said a Memorandum of Understanding is in place, which will soon be proclaimed an official supply agreement.

“It’s quickly moving to a supply agreement to re-establish a strategic relationship with them across a number of fronts, the first one being their aftertreatment system,” Allen explained. He said Navistar maintained ties with Cummins through the past two years and in fact sold more than 11,000 trucks with Cummins power into its export markets in 2011.

“It wasn’t a big stretch to get back together with Cummins,” Allen said.

Navistar officials said in some ways, the company will benefit from adding Cummins’ SCR technology to its trucks after the system has proven itself over a couple years in the field.

“Everybody had issues delivering their (EPA2010) products,” said David Majors, vice-president, product development, North American platform with Navistar. “That’s the benefit of us coming in later with SCR, those lessons have been learned.”

Navistar will also benefit from the extensive knowledge it gained on controlling NOx in-cylinder, officials said.

“The advantage we have is we’ve gone way deeper into EGR than our competitors have had a need to,” said Tim Shick, vice-president, North American engine sales. “That’s what we feel is going to give us an advantage going forward.”

While Navistar will dial back EGR flow rates, Allen said “because of all the work we’ve done on our in-cylinder product, we’re in the best market position to be able to optimize the engine and aftertreatment and to drive the best performance and best fuel economy in the marketplace.”

Navistar hasn’t yet decided whether it will continue to develop its own 15-litre MaxxForce engine, or rely solely on the Cummins ISX15 to appease customers with big power requirements.

“We’re going to have to make some decisions on whether we continue with that engine or go with the ISX,” Allen said. “The decision hasn’t been made.”

Allen confirmed to that the International LoneStar would remain an offering.

“We will add SCR to the LoneStar product and then we’ve got to evaluate the 15-litre, the cooling and all that kind of stuff to determine if we can go forward with the 15-litre (on the LoneStar),” he said. “We’d sure like to. The LoneStar is a product in our future, for sure.”

For now, Navistar is focusing most of its attention on its highest volume products, bringing out its 13-litre ICT+ engine and packaging the SCR system on the ProStar+ chassis. The installation of the SCR system has been fairly straightforward, officials said. They showed visiting journalists an International ProStar+ with a Cummins ISX engine with SCR under the hood.

The Cummins engine was pulled from a competitive truck and installed in the ProStar+ and driven from Colorado to Illinois without any issues, Majors explained.

Most trucks will use a switchback installation configuration, with the majority of the SCR components packaged underneath the passenger side steps. The company already has developed several SCR configurations on its various chassis to fit the needs of the vast majority of its customers.

“It’s a pretty clean installation for us,” said Majors. Officials said new trucks with either ICT+ or the Cummins engine with SCR will be priced competitively.

“We compete in a very competitive market today and it’s our intention to compete in that market going forward from a price/value equation,” Allen said.

There are about 40,000 MaxxForce 13 advanced EGR engines currently in the market, and Allen said Navistar expects them to retain their value.

“What happened when the industry went from 2009 to EPA2010 and what happened to the value of a non-SCR used truck? It went up, there was a marked pickup in the value of used trucks during that period in time,” Allen reasoned.

Shick noted the base engine will remain the same when SCR is added next year.

When a decision was made to add SCR, Navistar moved very
quickly to communicate the new strategy to employees, dealers and customers. Dealers, Allen said, appreciate the certainty of the new approach and the expanded product line but engineers who’ve committed the last few years of their lives to achieving the EPA2010 standard without SCR had mixed feelings.

“Are people disappointed the original strategy didn’t work? Of course. But clarity of a direction is a really powerful motivating factor; probably more powerful than any of us realized until we did it,” Allen explained. “The time this was taking, the anxiety it was driving, the uncertainty…I think there’s a lot of relief.”

While a seemingly humbler Navistar is looking ahead and eager to roll out its new engine line, Allen made no apologies for the company’s motivations to pursue a non-SCR engine.

“Great American companies innovate,” he said. “Great American companies differentiate themselves in the marketplace. It doesn’t always work out as well as intended.”

Whether or not Navistar could eventually have gotten its MaxxForce 13 certified if it had more time, and whether doing so would have provided the truck and engine maker with a significant advantage in the market, are questions that will go unanswered.

“I would just say, we came to the conclusion that the time required to continue on the process we were on, relative to the anxiety this was causing internally, with the dealers, the analysts and investors, that it was time to take a different direction and move ahead,” Allen said. “There was no real one event that drove that. We made a decision to go in a different direction and that’s where we’re going.”

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