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Navistar will build Industry 4.0-ready truck plant

Manufacturing cost savings and supplier cuts will help boost EBITDA margin

Navistar International Corp. plans to invest more than $250 million in a new manufacturing plant near San Antonio, Texas, adding approximately 600 new jobs.

Navistar International Corp. (NYSE: NAV) plans to invest more than $250 million in a new manufacturing plant near San Antonio, Texas, adding approximately 600 new jobs.

As reported earlier, the Lisle, Illinois-based truck maker also said Thursday, Sept. 19, that it plans to increase its earnings before interest, taxes, depreciation and amortization (EBITDA) margin to 12% by 2024 from the current 8%.

New plant vs. breaking bottlenecks

During a question-and-answer session following an Investor Day presentation at company headquarters, Troy Clarke, Navistar chairman, president and chief executive officer, said Navistar weighed the $200 million cost of breaking existing manufacturing bottlenecks to build more trucks vs. the $250 million cost of a new plant that could incorporate Industry 4.0.

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“It turns out that the financial return on $250 million is better than the return on $200 million,” Clarke said, “This is one of the major blocks in our journey” from an 8% to 12% EBITDA margin.

The new plant will be about a quarter of the size of Navistar’s Escobedo, Mexico, plant, which makes Class 7-8 heavy-duty trucks, mostly for the U.S. market. It runs two production shifts but paint shop constraints requires a third shift.

Navistar’s Springfield, Ohio, plant makes medium-duty International Class 4-5 models, which are responsible for most of the company’s market share gains in recent years. It is also building medium-duties for General Motors. The factory ceiling is so low that two shifts of off-line processing are required. A second Springfield line is dedicated to GM cutaway van chassis production.

Fewer suppliers and lower costs

Clarke and Chief Operating Officer Persio Lisboa said the new facility can incorporate lean manufacturing practices, including some from its alliance with TRATON, the holding company for Volkswagen AG’s truck units. Those practices will “cascade” to other Navistar plants over time. TRATON, which owns about 17% of the company, has purchasing and powertrain alliances with Navistar.

The Texas site is located along Interstate 35, which links Navistar’s southern U.S. and Mexico supply bases. Navistar expects a 15% in-bound logistics reduction and a 20% cut in its supply base because suppliers will locate within the plant’s geographic footprint. Engineering and research and development will see a 25% productivity gain, Lisboa said.

Groundbreaking is expected later this year. Production will follow in about 24 months. 

Navistar will operate the new plant by combining pre-engineered modules with each other on a single architecture, reducing by 40% the number of parts in the engineering system. “The platform strategy will be hard for others to duplicate,” Lisboa said.

Navistar earlier this year announced a $125 million investment in its Huntsville, Alabama, engine plant.

Production cuts

Navistar announced 15% cuts in production at Springfield and Escobedo during its third fiscal quarter earnings call because of declining orders for new trucks. The industry is averaging about 10,000 orders a month compared with 40,000 to 50,000 orders in the comparable months of 2018.

“We are not done making adjustments to line rates and shifting,” Clarke said. “We will be quick to manage our production capacity.”

Customers are still taking delivery of trucks ordered during a record 2018. That has pushed out the typical fall order season, he said, adding that orders should begin to rise in January once companies assess their need for replacement trucks.

Electrification and autonomous plans

Navistar said it will focus its electrification efforts on medium-duty trucks and school buses around the country in 2020 with limited commercial sales in 2021. 

“We need to balance e-mobility and diesel,” Clarke said. “We don’t see 100% conversion to electricity.” He said 20-30% industry penetration of electric trucks is possible by 2025.

The industry’s move toward partial and high automation translates to a way to make trucking safer and address rising insurance premiums. Navistar will offer Level 2 and Level 4 autonomous trucks when customers are ready, Clarke said.

Market share gains 

Navistar has been rebuilding its combined medium- and heavy-duty share in recent years after a decision to use a faulty engine emissions control technology earlier in the decade cost the company billions in repairs and claims and about half its customer base. 

Under its Vision 2025, the company is targeting 25% market share by 2025, up from the current 17%. It expects to add a half to one full point of share each year, Lisboa said.  

Of the 11 industries to which Navistar sells, seven purchased more this year. The company goal was six.

“The first half (of 2020) is just a little squishy for us,” Clarke said. “Our order share is higher than our market share. We can look forward to share gains.”

Navistar shares rose 25 cents, or 0.89 percent, to close at $29.30. 

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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.