By Bob Tita
Commercial truck maker Navistar International Corp. will close
an engine plant in Alabama this summer as it moves to eliminate
excess production capacity and consolidate its engine lineup for
medium-size trucks.
The closure of the plant in Huntsville will result in the loss
of about 280 jobs and generate savings of about $22 million a year.
Production at that plant will be shifted to an engine plant near
Chicago, which will add about 75 workers. Navistar will continue to
produce large diesel engines for heavy-duty trucks at a second
plant in Huntsville.
The move reflects an increasing reliance on engines made by
Cummins Inc. Navistar recently began offering Cummins's engines in
its medium-size trucks and had earlier decided to buy 15-liter
engines from Cummins for heavy-duty trucks.
With the addition of Cummins's popular midrange engine, Navistar
Chief Executive Troy Clarke said the company is reviewing its own
engine line for medium-size trucks and is likely to discontinue
some low-volume models. The Huntsville plant slated for closure
produces a variety of diesel engines ranging in size from 6 liters
to 9.3 liters.
"We're not going to go out of the engine business," Mr. Clarke
said during an interview Thursday with The Wall Street Journal. "We
just have too much manufacturing capacity at this point."
Trimming excess production capacity has been a priority for Mr.
Clarke as he attempts to restore profits by reducing production
expenses.
"This has been a long time in coming," said Walt Liptak, senior
analyst for Global Hunter Securities LLC in Chicago, about the
plant closing. "It's good to see the company is getting their
engine cost-structure reduced."
Navistar, based in Lisle, Ill., has struggled to turn a profit
for the past two years in the face of soaring costs for engine
warranty claims that stemmed largely from a failed strategy for
meeting federal mandates to cut pollution in diesel engine
exhaust.
Even though Navistar switched to a widely used exhaust treatment
technology in 2012, truckers' concerns about the reliability of
Navistar's engines have weighed on truck sales and eroded the
company's share of the medium- and heavy-duty truck markets in
North American.
Navistar's share of the medium-duty market was 17.3% at the end
of January, compared with 25% at the same time a year ago. Its
share of the heavy-duty market was 14% in January, about the same
as a year earlier, but off its low point in late 2012.
Before the company's engine problems, it was the market leader
in medium-duty trucks with a share above 30%. Its share of the
heavy-duty market had been about 21%--good enough for third place
behind Daimler AG's Freightliner unit and Paccar Inc., maker of
Kenworth and Peterbilt trucks.
Write to Bob Tita at robert.tita@wsj.com
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