Today, Navistar took a major step to resolve the legal accusations filed in 2014. U.S class action plaintiffs have filed a motion seeking preliminary judicial approval of a settlement agreement that, when effective, will be a major step in resolving EGR litigation related to Model Year 2011-2014 Class 8 trucks sold with the company’s big bore engines, the company stated. In anticipation of that settlement, Navistar is taking a $159 million charge, including $135 million to reflect the cost of the proposed settlement and an additional $24 million for certain other engine lawsuits that are not included in the settlement agreement.
This preliminary step toward the settlement of these class action lawsuits supports the company’s ongoing efforts to focus on Navistar’s current and future market opportunities.
While this is definitely the biggest headline-making move, it’s just one of many that Navistar has recently taken to position itself for future progress. Over the past six months, the company has repaid over $600 million of its outstanding debt, which included both of its convertible notes. The repayments were funded with cash on hand, another sign of the company’s improved financial profile.
Additionally, in December 2018, Cerberus Capital Management announced its purchase of a 70% interest in Navistar’s defense business, Navistar Defense LLC. This strategic milestone provided Navistar Defense with a well-established, long-term partner that is focused on making crucial growth investments in the business. It also sent a strong signal to the market that the company was focused on core truck and bus activities that remain at the heart of the company’s future.
Further strengthening the company’s position—and limitation of outside issues—in January 2019, the company ratified a new six-year collective bargaining agreement with the United Auto Workers. The contract sets a mutual agreement between the UAW and Navistar to implement team concepts at the company’s largest US manufacturing facility in Springfield, Ohio. The agreement not only sets a six-year path of prosperity for the plant workers, but includes critical agreements pertaining to quality, safety and cost.
Navistar also announced the purchase of group annuity contracts that transfer to two Canadian insurers approximately $268 million of defined pension benefit plan obligations in Canada. The February 2019 transaction reflected Navistar’s goal to de-risk the balance sheet and manage future pension obligations while providing retirees with equivalent pension benefits.
So what does this all mean? What prompted the settlement decision? And what does this mean for the company which once again saw profitability the past two years after refreshing its entire product lineup?
I turned to Troy Clarke, Navistar’s chairman, president and chief executive officer, for the answers.
Fleet Equipment (FE): What went into the decision to settle the Class Action lawsuit?
Troy: Look, we’ve taken major steps to get beyond this issue in the marketplace. We’ve stood behind our customers and launched a great new product lineup. As a result, we’re growing market share. Our goal today is to focus on the opportunities that will keep building on that momentum. Resolving these class action lawsuits will help us sustain that focus
FE: Coming off the heels of a profitable year, the settlement is definitely a good chunk of that profit—how does putting this behind you position Navistar going forward?
Troy: It positions us as a company that is focused on its customers and what they need to succeed. They’re looking for trucks that deliver reliability, durability, fuel efficiency and ease of operation, and we’ve checked that box. We’re also determined to provide them with industry-leading uptime. For example, our new partnership with Love’s Travel Stops makes our service network the industry’s largest and provides our customers with increased repair velocity.
FE: What feedback have you received from the Traton strategic alliance?
Troy: Traton, like Navistar, understands the value of a strong customer focus. The strategic alliance supports that focus and is delivering exactly what we’ve looked to it to provide. It is helping both companies with improved global scale and advanced technology at lower cost.
FE: What does this settlement mean to you personally, and what do you hope it shows the industry?
Troy: Personally, I see it as one of a number of steps we’ve taken to sharpen our focus on the future. We’re growing our core businesses, improving our balance sheet, and establishing a foundation for improved quality, efficiency and productivity. These steps demonstrate that we’re very, very serious about delivering quality and value and focusing on what customers need.
Moving forward
And, of course, there’s the elephant in the room: the prospect of Traton purchasing Navistar. The strategic alliance between the two companies continues to reap rewards for Navistar (its A26 International engine is just one example of many), and with Traton’s announcement that Volkswagen is a go for a summer IPO, Navistar’s latest strategic moves bode well for the OEM. Traton is on record saying it wants to be the “Undisputed Global Champion”—call it marketing, call it foreshadowing, but the fact is that they need a player in the North American market and Navistar has turned more than a few heads with its latest product lineup. You can be sure that Fleet Equipment will bring you the latest updates as we hear them.
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