The World Trucks Blog

Navistar's Spiral of Despair: S&P Warns of Downgrade

2009-07-02T15:36:13Z

This from Dow Jones

S&P Warns Navistar, Finance Arm May Get Cut To Highly Spec

Standard & Poor's Ratings Services put Navistar International Corp. (NAV) and its financing arm on watch for downgrade, noting a persistent weak outlook for North American commercial-vehicle demand this year and next.

Heavy-duty vehicles such as buses and big trucks have seen a sales slump like their consumer-oriented brethren have. The heavy-duty business, which also includes engine manufacturing, has been offset in part by strength at its military business.

But S&P noted its potential ratings cut on Navistar and Navistar Financial - both of which currently sit one notch above highly speculative territory at BB- - is also reflective of Navistar earlier this week losing out on a $1.05 billion contract for military armored vehicles.

The ratings agency noted while prior ratings didn't account for getting the contract, the Pentagon's decision to give the contract to Oshkosh Corp. (OSK) eliminates a potential benefit for Navistar that would have partly offset the truck-industry woes. Still, S&P expects Navistar to continue generating "significant" military revenue with good profitability.

Orders for new medium-duty and heavy-duty trucks remain low, and S&P believes 2009 sales could decline by 50% from last year's already-weak levels. It would be the third-straight year of declines for the industry.

S&P said as part of its review, it will look into whether weak industry conditions and what it sees as a slower pace of military-truck production could lead the company's free operating cash flow "to turn significantly negative" for the fiscal year ending in October.

It said it also will assess the company's prospects for renewing the $1.4 billion bank credit facility at Navistar Financial.

S&P believes any downgrade would likely be limited to one notch.

Navistar's shares were recently down 3.82% at $40.90. Despite nearly doubling so far this year, the stock is still off about 39% in the last 12 months.

Chavez Looks to MAZ

2009-07-02T11:46:03Z

According to this report, Venezuela may be looking to spend some money in Belarus, and MAZ is high up on the list. Oil money meets robust HR policies and the result could be interesting.

Another Day, Another Denial

2009-07-02T09:56:12Z

This time it's Toyota denying talks with Daimler, according to this report.

Granted, everyone talks to everyone else in this day and age, but we're intrigued by this. Both companies are burning cash and look likely to continue to do so for the next few quarters, and both have issues that some form of collaboration - especially on a small car platform - would go some way to resolving. We're still taken with the idea of something involving Renault, the French State and EADS, but who knows.

What may prove interesting is where Fuso and Hino might fit here. We wouldn't bet against some very significant structural changes within Daimler Trucks over the next few months, involving both Japan and NAFTA. Divestments require buyers however, and, whilst we can see at least some evidence of these in North America, in Japan they are notable by their absence. Given that DAI has now banked the platform benefits that accrue from a converging emissions set across the Triad, it may now be time to revisit the 'Does Scale equal profit' orthodoxy.

One to watch.

Navistar's Spiral of Despair: Shut Out of MATV

2009-07-01T00:17:17Z

Be interesting to see how this is handled. We'll repeat our questions.

Oshkosh Wins MATV

2009-06-30T21:02:37Z

Lights out for who?

http://www.defenselink.mil/contracts/contract.aspx?contractid=4061

But - this might not be the whole story. OSK gets a $1 billion order. We think there may be a bit more to come.

More MATV.

2009-06-30T17:40:41Z

This is a bit odd. Plenty of speculation, but not one (plausible) leak. Which, for a contract of this size seems odd. Can we make anything of this?

For the third time, it's all eyes on the DoD website for 5 pm EST. Once again, we reiterate that there should be as much interest in the loser(s) as in the winner(s). For one or two of the protagonists, failure here could usher in some (further) significant problems.

Navistar Heads South

2009-06-30T09:26:58Z

Not, we hasten to add, an allusion to what might happen should it fail to win a significant part of the MATV contract - the winner(s) of which now look likely to be announced at 5pm EST today. Though, it must be said, such failure would be a significant talking point.

Instead, we're talking about the long-running saga that is Navistar's Chatham plant, which sees its Labour agreement with the CAW expire today. This report suggests that fewer than 100 staff will remain - from a peak of 2500 in the late 1990's - and that NAV's production will move down to the lower cost, right to work states in the South - Garland, TX we'd assume, as well as Escobedo, Mexico.

Another Day, Another Wait for MATV

2009-06-29T06:32:18Z

Didn't happen Friday, so all eyes on the DoD website to see who has scooped the MATV pool. It may be one of the four, it may be a joint award, we know not, but FRPT seems to be the front runner at the moment.

Our interest is not so much in the winner, but whether or not the losers can afford to lose. There's $12 billion at stake here.

Cramer Tips Paccar

2009-06-29T06:26:07Z

Don't know what it is about Jim Cramer, but we always like to make certain that the remote is within easy grasp whenever he turns up on the box.

However, his views on Paccar are noteworthy; he reckons that it will be trading north of $40 a share within a month - from around $31 a time at present - on the back of a bottoming US housing market and a shift to bullish sentiment within the markets.

Booyah indeed.

Zetsche Calls Time on the Downturn

2009-06-29T06:19:33Z

Whether or not his improved mood stems in part from watching the frolics across the street at Porsche, Dieter Zetsche sounds pretty upbeat in this article, which draws on an interview published in Welt am Sonntag.

By upbeat, we mean that he seems to suggest that things are now as bad as they're going to get, and the road to recovery now beckons: "From today's perspective, not only will we not experience any more negative surprises in terms of the whole year, rather we could even have the chance to develop positively," is the view from Stuttgart.

Paccar's Engine Plant

2009-06-26T19:35:51Z

Confirmation - finally - that its opening is to be delayed by a year. This from the Columbus Dispatch refers.

Email Updates.

2009-06-26T16:39:59Z

Quaint - you can now subscribe to our blatherings care of this useful device by which you get an email every time we post.

Enjoy.

MATV - Day of Reckoning

2009-06-26T13:46:30Z

Today is - maybe - the day when the DoD announces the MATV award.]]>

The four protagonists - BAE, Oshkosh, Navistar and Force Dynamics - have much to win from this award. Think $12 billion. But the downside is that they also have much to lose.

Interestingly, Wachovia upgraded NAV this morning, from market to out-perform, saying that:

"Our upgrade is based on expected significant earnings reacceleration in FY2011 after a beneath-consensus FY2010 absent any benefit from potential military contracts into which we have very limited visibility. Establishing EPS estimates, with FY2009E EPS of $3.25 (versus consensus' $2.97), 2010E of $2.15 (versus consensus' $5.11) and 2011E of $5.60. We are not including benefit from military contracts, and NAV could potentially be in a position to achieve consensus if it wins around 50% of the M-ATV contract expected to be announced June 26, 2009. Absent this, consensus appears to be too high."

"Given the significant earnings potential with upside and downside risks, we are looking through potential short-term volatility due to the M-ATV award announcement, a low-quality balance sheet, and risks associated with a portion of the company's post-2010 engine strategy." (The bold font is ours).

In other news, the last remaining European OEM to have any truck with EGR has now said that it's not going to happen at Euro VI - which, as we are now all aware, bears a striking resemblance to EPA 10. Reports from Integer Research's European Conference say this:

"Swedish truckmaker Scania has announced its intention to use SCR in combination with EGR to meet the Commission's tough new limits on NOx and PM. The announcement was made at Integer's Diesel Emissions Conference in Brussels, and has confirmed industry speculation that all OEMs would be using some level of SCR technology for Euro VI. The company also confirmed that it will not be using a DPF as part of its Euro VI emissions control package."

Which now leaves Navistar as the ONLY OEM pushing a HD EGR-only emissions strategy for the next round of US and European emissions legislation - namely EPA 10 / Euro VI. With only - at present - a 12.4 litre engine on offer; the 15 litre engine - the Caterpillar - will be along at some point - see here for the discussion. All told, this must feel like a very lonely place, and, presumably, $12 billion might help a bit.

But this from Dougherty & Co suggests that NAV might not have things all their own way:

"Dougherty believes the military is likely to sole source the M-ATV contract this Friday, according to the latest update from firm's industry and government sources. Firm continues to believe Force Dynamics remains the front runner with a 60%+ chance of winning 100% of the award based on the Cheetah's superior survivability performance and most mature vehicle design. Firm is hearing extensive talk about awarding M-ATV to one vendor, but that multiple vendors could be used to produce the winning vehicle design. Firm believes this is a positive data point for FRPT. Based on firm's discussions with sources, they believe the government's key concern about selecting Force Dynamics previously was production capacity. Firm notes capacity has always been a strength for Navistar (NAV)."

Now it's VW and Suzuki

2009-06-26T00:33:30Z

Something must be getting into the water over at Manager Magazin. Fresh from its suggestion that Daimler would be taking a piece of Porsche, it's now of the opinion that VW will be taking a piece of Suzuki.

That'll work; let's do some maths here. A Japanese manufacturer offers amongst other advantages a high cost base, inflexible labour legislation, and a plethora of Indian and Chinese OEMs waiting on the opportunity to clean the clock of any Western OEM gearing up for a mass market foray into Asia. But be that as it may, FP wants to add brands to VW. You say strategy, we say Barking.

Mack Moves to Pennsylvania

2009-06-25T15:30:51Z

According to this Press Release issued today:

Mack to Consolidate U.S. Production in Macungie, PA, Assembly Operations

LEHIGH VALLEY, PA (June 25, 2009) - Mack Trucks, Inc. today announced that the company will move forward with its previously announced plan to consolidate production of its entire product line at its assembly facility in Macungie, PA.

The plan involves transferring assembly of Mack highway vehicles from the plant in Virginia's New River Valley to Macungie, where Mack's construction and refuse trucks are assembled, to take advantage of efficiencies arising from consolidated assembly, and to create a brand-unique environment for Mack customers.

The company expects to begin the transfer in September 2009 and complete it by the end of November 2009, during which period there will be a gradual production ramp-down in NRV and a corresponding ramp-up in Macungie.

Due to the prevailing market conditions, the company expects that rather than adding personnel in Macungie, it will instead support the increased production by reducing the number of down weeks. The transfer is expected to result in an employment reduction at the NRV plant, which will continue to produce Volvo Trucks North America's entire product range, but it is too early to quantify the impact.