Navigant Research Blog

Navistar Emerges from Emissions Struggle

Dave Hurst — September 25, 2012

Earlier this month we saw the final blow to a system of diesel exhaust gas treatment and the end of a saga that has dominated talk in the heavy duty engine market for a couple of years.

To recap: Back in 2001, the EPA issued new rules saying that by 2010 diesel engines could not emit more tham .20 grams per brake horsepower of nitrogen oxide (NOx).  By 2010, there were two ways to meet these requirements: selective catalytic reduction (SCR), a system that sprays urea, or diesel exhaust fluid (DEF), into the hot exhaust gases to break the NOx, and exhaust gas recirculation (EGR) which reduces NOx by lowering the combustion temperature in engines.

By 2010, Navistar was the only U.S. diesel engine maker to be pursuing an EGR strategy, but the EPA had not yet certified EGR engines as compliant with the new standards, whereas competitors’ SCR engines had been ruled compliant.  In July 2011, Navistar sued the EPA, claiming that SCR systems do not meet the 2010 Clean Air Act requirements because drivers can opt not to refill the exhaust fluid tanks, leading to emissions significantly higher than the 2010 standards.  Predictably, other engine makers including Mack, Volvo, Cummins, and Daimler AG were none too happy about this and filed a lawsuit of their own.

Navistar continued selling engines that did not meet the 2010 requirements, with credits banked prior to 2010.  In February 2012, these ran out, and the EPA allowed Navistar to sell engines with a $1,900 fine.  The engine manufacturers’ suit claimed the EPA did not follow and did not provide the legally required period for comment or formal notice.  In June, a federal court sided against the EPA, opening Navistar to further fines or an actual ban on sales of its engines.  This resulted in an about-face for Navistar on SCR and the exit of its CEO in September.  Lewis Campbell from Textron (conglomerate manufacturer of Bell Helicopters, Cessna aircraft, E-Z Go golf carts, and others) was appointed.  However, Navistar investor and takeover artist Carl Icahn slammed Navistar for how the choice was made and asked for new board seats to be released to investors, essentially indicating that this saga hasn’t quite finished playing out yet.

What does all this mean for Navistar in the smart transportation space?  I don’t see a huge impact either way, but as Navistar tries to emerge from this debacle, its resources for smart transportation R&D will likely be constrained.

That said, in the short term, the reversal could help Navistar’s natural gas trucks.  Navistar already has a relationship with Cummins for natural gas engines for Cummins’ trucks.  This upheaval in the diesel truck engine sector may push Navistar to market its natural gas options more heavily to avoid the battle over NOx emissions.  The fledgling electric truck program (E-Star along with a bigger sibling in development with AMP) may not see the same benefit, since the program costs and retail pricing are significantly higher.  Longer term, Navistar’s natural gas truck unit seems likely to remain solid, but the electric truck program could be at risk without a fast turnaround on declining profits.

One thing can be said for sure: truck manufacturing (cleantech or not) doesn’t generally thrive in the midst of this sort of upheaval.

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