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Navistar International is again turning to Cummins Inc. to produce an environmentally friendly truck engine in a bid to boost lagging sales.
This time, the Illinois-based truck maker is saying it will order ISB 6.7-liter engines from the Columbus-based manufacturer for its medium-duty trucks and school buses.
“It wouldn’t surprise me to see some of the big-package delivery companies getting interested in this,” said Mike Brezonick, editor of Diesel Progress magazine. “It’s another example that shows Cummins has very good products that people in the marketplace are comfortable with, and it should put a lot of people in a real comfort zone buying Navistar trucks.”
Cummins has been making its MidRange ISB 6.7-liter engine primarily at its Rocky Mount, N.C., plant, but the MidRange Engine Plant in Columbus also has built the ISB 6.7 as needed to meet peaks in customer demand.
Jon Mills, a Cummins spokesman, declined to say whether the Columbus plant will get more work because of the latest Navistar agreement. That likely depends on how many trucks Navistar can sell.
“In medium-duty (trucking), there’s a number of very large customers that move market share very quickly,” said John J. Allen, president of Navistar’s engine group. “We’re going to start deliveries of ISB-built products in December, and we’re very encouraged by the reception.”
The Cummins’ engines use SCR technology (selective catalytic reduction) to reduce emissions and meet new federal highway standards aimed at reducing vehicle pollution.
Navistar, which makes engines of its own as well as various trucks and buses, said it hasn’t abandoned plans to make its own SCR engines for medium-duty vehicles such as delivery trucks and buses, but the Cummins deal buys them more time to get there.
Navistar does offer its own MaxxForce engines using exhaust gas recirculation, or EGR, in medium trucks; but many customers prefer selective catalytic reduction engines. Three months ago Navistar had said it hoped to be ready with SCR engines of its own by the beginning of 2014, but Allen told stock analysts Wednesday that the company now has “more time to lay out a revised transition plan for our own midrange engines.”
“I look at it as a positive for both companies,” said stock market analyst Mark Foster of Kirr Marbach & Co. in Columbus. “Navistar gets to market faster with SCR technology since their own technology has been developing pretty slowly. And Cummins gets engine
Navistar executives said in a stock market conference call at midweek that the company has seen orders fall too swiftly in its medium-truck segment, in large part because it wasn’t selling any medium-duty trucks outfitted with SCR-emissions engines.
“Some folks were waiting on the sidelines, so we felt we needed to take action as quickly as possible. By launching the Cummins ISB into our medium-duty products, we believe we can more quickly grow our market share,” said Troy Clarke, Navistar’s president and chief executive officer. “I think this engine will really play to our strengths.”
The Lisle, Ill.-based truck-and-engine maker said production of trucks fitted with the Cummins engine is scheduled to begin in December. Regular production of school buses is scheduled for late January, the company said.
Cummins will start production of the engines for Navistar this month, although Mills declined to say where the initial products will be built. Last year, Navistar began outfitting its heavy-duty trucks with 15-liter engines from Cummins.
The expanding relationship with Cummins comes as Navistar sees its financial losses grow and sheds more jobs. Earlier this week, Navistar said it plans to cut 500 jobs, and it might consider more plant closings or consolidations to trim costs.
In the third quarter, Navistar just reported a loss of $247 million, or $3.06 per share, compared with a profit of $84 million, or $1.22 per share, a year earlier. Revenue for the quarter was $2.86 billion, down 12 percent from the previous year. Medium-duty truck sales declined 2,400 units compared with last year, the company said in the earnings call with analysts.
Navistar said it expects to save $50 million to $60 million starting in fiscal year 2014 as a result of job cuts and other belt-tightening measures.
Allen said he thinks sales of trucks with the Cummins engines in them will start to have an impact on Navistar’s revenues in the first quarter of 2014.
Wall Street analysts believe the Navistar deal should provide an incremental boost to Cummins’ earnings. Goldman Sachs released a position paper suggesting the best-case scenario for Cummins “would imply 60 cents per share of earnings upside ... all else being equal.”
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