Case Study Of Navistar 1c57h

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Introduction 1.1

Company overview

This assignment is regarding to case study of Navistar Corporation. It is one of public type of automotive company in USA which is face to financial crisis in previous years. But it has had bright heritage in 90th century. Its industry is automotive write now but formed by harvest. Its products are manufacture of Trucks, Buses, School buses, IC buses (integrated circuit) workhorse brand chassis for motor homes and step Van. In addition they manufacture diesel engines and parts. Navistar was founded in 1902. 16500 employees are working under Navistar Cor. Parts , services and products are selling through a network of nearly 1000 dealer outlets in USA .It covers 60 dealers in 90 countries around the world. Headquarter is lisle, Llinosis in USA. The aim of this assignment is to critically reflect surface analyzes regarding this organization and major thing is introduce the viable turnaround strategies for up survive Navistar corporation. 1.2

Key Issues

Slow growth rate of the industry that is caused by economic decline leading the decreasing of the growth to 2%. The products that the competitors manufactures are all the same as all of those truck manufacturer mainly focused on driver comfort and safety. Complicated and detailed difficult orders to be realized as the order specification from the fleet manager can be as much as 200 lines items. Relatively high driver turnover usually range from 80 to 200% that create a driver shortage due to low pay, long distance from home, and uncomfortable equipment. Cost reduction issue that contradicting with the company attempts to increase the quality of its customer service. Aggressive technology development in the industry as Volvo and Paccar had plans to improve part availability, computer system, and communication. It does not include the attempts from other companies on interior comfort by Freightliner, engine durability by Mack, aerodynamic model that improve fuel economy by Peterbilt. 1.3

Major Problems

The company just wrapped up year two of its urgent turn-around program, instituted after its Exhaust Gas Recirculation-only (EGR) emissions strategy failed to materialize. To be fair, if the strategy had worked, it would have been a game-changer. But Navistar’s previous management Page 1

team, headed by president Dan Ustian, kept trying to pound a square peg into a round hole far too long after it was apparent EGR-only wasn’t viable. 1. Its attempted methods to comply with Environmental Protection Agency (EPA) diesel emissions regulations had failed and the company would be forced to revise its compliance plan at enormous costs; 2. Navistar did not have engines available in a timely manner to meet the 2010 EPA standards; 3. Navistar's filings with the Securities and Exchange Commission (SEC) contained incomplete and misleading disclosures, including statements about the costs of recalls and details of various debts; 4. And as a result of the foregoing, defendants lacked a reasonable basis for their positive statements about the company and its revenue outlook. 1.4

Revenue

Truck maker Navistar International Corp.'s loss widened in its most recent quarter as revenue tumbled a worse-than-expected 11%. Shares of Navistar, down 48% this year, tumbled 13% to $15.10 a share in premarket trading.Overall, Navistar reported a loss of $28 million, or 34 cents a share, compared with a year-earlier loss of $2 million, or two cents a share. Profit in the prior-year period was helped by a $32 million benefit from the company's reassessment of warranty costs for products sold. Losses from continuing operations were 37 cents in the quarter, compared with a loss of four cents a share a year earlier. Revenue slid 11% to $2.54 billion, as growth in truck, bus and parts sales was offset by lower exports and revenue declines in its global operations. Analysts had expected a profit of eight cents a share and revenue of $2.75 billion. The company has had little success so far in gaining share in the heavy-duty truck market. It remains in fourth place with about 13%, off its 15.4% goal for 2015. Company is on track to achieve its market-share goals for the year, as it seems improvement in medium, school bus and severe service trucks.In the most recent quarter, the company saw a 5% Page 2

increase in chargeouts for Class 6-8 trucks and buses in the U.S. and Canada from the year earlier.The truck segment recorded a loss of $36 million compared with a year earlier loss of $3 million. In the parts segment, profit grew 10% to $151 million, helped by margin improvement in commercial markets. The global operations segment recorded a loss of $26 million, compared with a loss of $21 million a year earlier due to the downturn in Brazil. South American engine shipments were down 42% year-over-year.

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Market Share

It shows how weak the Navistar’s market share and income status in the industry. 1.5

Competitors of Navistar

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Navistar has to competes with 3 of big players in same industry. Those are Pccar, AB Volvo and Daimler. Among those that PACCAR is one of the world's largest designers and manufacturers of big rig diesel trucks. Its lineup of light-, medium-, and heavy-duty trucks includes the Kenworth. Peterbilt, and DAF nameplates. The company also manufactures and distributes after market truck parts for these brands. PACCAR's other products include Braden, Carco, and Gearmatic industrial winches. With the exception of a few company-owned branches, PACCAR's trucks and parts are sold through independent dealers. Its PACCAR Financial Services and PacLease subsidiaries offer financing and truck leasing, respectively.Other one is Volvo should really only inspire images of burly truck drivers. The company is one of the world's largest makers of trucks, buses, and construction equipment as well as Navistar in North America, the company makes big rigs through its Volvo Trucks North America unit; Volvo also owns controlling interests in the well-known Mack Trucks brand in North America and Renault Trucks in Europe. Other products include marine (Volvo Penta) and industrial engines. Overall Volvo has production facilities in nearly 20 countries. Other previous big player Daimler is now starting to challenge for all competitors that not only Navistar. it is climbing up now in industry. Daimler's cars may stop on a dime, but they cost a little more than that. Daimler's enger car business, Mercedes-Benz, includes luxury brands Mercedes and Maybach, as well as compact, hybrid, and electric models, including its smart brand. Other major auto brands include Freightliner, Western Star, BharatBenz, Fuso, Setra, and Thomas Built Buses, while financial services brands include Mercedes-Benz Bank, Mercedes-Benz Financial, moovel, and car2go. Its Daimler Trucks North America unit manufactures heavy-trucks in the US. Daimler sells its vehicles in 40 countries, but Europe represents around 35% of its net sales. Providing a complete view of how this company and its competitors stack up against one another, the Competitive Landscape report includes benchmarks on over 30 parameters related to sales, employees, market cap, profitability, and growth ect as follows.       

Profitability Valuation Operations Financial Ratios Per Share Data Growth Statistics Technology Page 4

1.6 Competitor Advantages Navistar is previously gone down in profit margin but they are still survive in the industry for 108 years. Because of Navistar’s has sustainability strategies for long time and short time. 1. Brilliant Engineering 2.

Loyal customers

3. Good designs 4. Positive hesitage 5. Distribution strategy VII Navistar’s Stock a. Navistar International Corp stock is getting run off the road today, down around 13.62USD write now.This is more of the same ugliness for shareholders over the past few years.the company's stock lose more than 60% of its value since the beginning of 2014. b. There's absolutely no news out there to point at as an explanation for Navistar's sharp sell-off today, which is happening on exceedingly high share volume that's

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more than triple the three-month average. There's also not anything on the newswire about competitor Paccar (that could affect Navistar's stock price today. 2. Chances are, what we are seeing is a combination of factors. This time of year, it's not uncommon to see individual investors and large funds and money managers offload stocks that are down for the year. Not only are there tax benefits from so-called tax-loss selling, but funds often sell off their losers to make their portfolios look better. 3. For a stock like Navistar's, which is now down more than 71% this year, it's a prime endof-year selling candidate. Sometimes momentum can take over, too, when a little bit of selling sends a stock lower, which leads to more selling. Before you know it, a beat-down stock gets even more beaten down. I think that's the situation here. 2.0

PEST Analysis

2.1 Political USA has a strong democratic setup and effective rule of law, with elections that are considered fair and transparent. The country enjoys massive political and economic influence over both national and global policymaking, and is recognized as the leading superpower in the world. However, the country faces international criticism for its interventionist policies regarding the ‘War on Terror’ which is souring foreign relations, and at the same time fueling terrorist groups, increasing the threat of terrorism. At the previous the U.S. Environmental Protection Agency filed suit against Navistar International Corp. on Wednesday, July 15, claiming the truck maker violated the Clean Air Act. In the lawsuit, the EPA claims Navistar installed more than 7,700 engines built in 2009 into 2010 model year units, which violated the EPA emissions standards that took effect Jan. 1, 2010. Civil penalties could total in excess of $300 million if Navistar is found liable — a fine of upwards of $37,500 a day per each each violation.Navistar said assembly of the engines cited by the EPA started in 2009, but they weren’t completed until early 2010. The company has said previously these engines should be permitted as “brief” engines eligible for trucks built in 2010. But the EPA said the company failed to secure the proper exemptions to use the engines. The suit further claims the engines were not covered by “certificates of conformity”; something that has already been before federal judges. In 2013, federal judges threw out an EPA rule related to its approval of heavy-duty truck engines that did not meet its emission standards. 1.

The ruling came as Daimler, Volvo and others repeatedly challenged the EPA over its decision to grant “certificates of conformity” to Navistar, which allowed the company to market engines that failed to meet emission requirements and pay a nearly $4,000 fine on each non-complaint engine sold. plan at enormous costs;

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2.

Navistar did not have engines available in a timely manner to meet the 2010 EPA standards;

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Navistar's filings with the Securities and Exchange Commission (SEC) contained incomplete and misleading disclosures, including statements about the costs of recalls and details of various debts;

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And as a result of the foregoing, defendants lacked a reasonable basis for their positive statements about the company and its revenue outlook. 2.2 Economic

The United States of America is the third most populous country in the world, and the fourth largest by total area. With a population of over 318 million, the country is ethnically diverse and has the largest economy in the world. The country’s growth slowed down after the 9/11 attacks and the recession in 2009 added to that as the economy contracted significantly. However, the economy is now moving on steady course forward thanks to increase in business investment, consumer expenditure and substantial decrease in unemployment.With a GDP of over $16.760 trillion, the US is the largest economy in the world. The economic system is well-developed and gathers its strength from its services and manufacturing industries. The recession in 2009 adversely affected the economy of the country and unemployment rates soared to an alarming point. But the economy bounced back with a growth of around 4% in the third quarter of 2014 as consumers and businesses have stepped up spending. However, the increasing budget deficit puts the economic prosperity of the country at grave risk as the deficit currently amounts to a staggering $506 million. It is lokking on 2001 Economic down effect of Terrorist arttack in USA also effect to Navistar’s down profit margin. Navistar started to gone market down in 2003.it was unstable Economic condition in USA. 2.3

Social

Like most developed countries, the US faces the problem of an aging population which can lead to a serious labor shortage and rising tax rates in the future. Nonetheless, the education and healthcare system is one of the best in the world. A majority of the population has a liberal mindset, but rising racial intolerance is a serious concern. Additionally, increasing illegal immigration is another concern, as there are currently more than 11.7 million people living illegally in the US, further increasing the risk of racial discrimination. 2.4

Technology

Innovation and technology are the cornerstones of the US economy. Since its inception, the country has been leading in of adapting and applying technology. Though the country faces strong competition from rising economies, it is expected it will continue to retain a technology supremacy over its competitors. Additionally, the US has also been at the forefront in enhancing Page 7

and developing technologies in areas such as nanotechnology, environmental technology and biotechnology, which opens up massive opportunities for companies with expertise in the mentioned fields. IT is another field the US has been excelling in. However, it has also been facing intense competition from countries like China and India,Koria, Japan.thoses countries also climbing up in same Technology write now. Navistar has to research continuously for generate new technologies for develop automotive skills and face to competes with domestic and internationally competitors. So, in this Technology analysis of USA, we examined briefly the various factors that are affecting the external macro environment of the country. 3.0 Porter’s five forces 3.1 Bargaining power of suppliers I . Diverse distribution channel (Navistar) The more diverse distribution channels become the less bargaining power a single distributor will have. This positively affects Navistar. Diverse Distribution Channel (Navistar)" will have a longterm negative impact on this entity, which subtracts from the entity's value.When suppliers are reliant on high volumes, they have less bargaining power, because a producer can threaten to cut volumes and hurt the supplier’s profits. This can positively affect Navistar. II Volume is critical to suppliers (Navistar) When suppliers are reliant on high volumes, they have less bargaining power, because a producer can threaten to cut volumes and hurt the supplier’s profits. This can positively affect Navistar. 3.2 Bargaining Power of Customers I Product is important to customer (Navistar) When customers cherish particular products they end up paying more for that one product. This positively affects Navistar. 3.3 Intensity of Existing Rivalry When industries are growing revenue quickly, they are less likely to compete, because the total industry size is also growing. The only way to grow in slow growth industries is to steal marketshare from competitors. Fast industry growth positively affects Navistar.

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3.4 Threat of Substitutes 3.5 Threat of New Competitors I Industry requires economies of scale (Navistar) Economies of scale help producers to lower their cost by producing the next unit of output at lower costs. When new competitors enter the market, they will have a higher cost of production, because they have smaller economies of scale. Economies of scale positively affect Navistar. … "Industry Requires Economies Of Scale (Navistar)" has a significant impact, so an analyst should put more weight into it. "Industry Requires Economies Of Scale (Navistar)" will have a long-term positive impact on the this entity, which adds to its value. This qualitative factor will lead to a decrease in costs. This statement will lead to an increase in profits for this entity. "Industry Requires Economies Of Scale (Navistar)" is a difficult qualitative factor to defend, so competing institutions will have an easy time overcoming it. II Strong brand names are important (Navistar) If strong brands are critical to compete, then new competitors will have to improve their brand value in order to effectively compete. Strong brands positively affect Navistar. … III Customers are loyal to existing brands (Navistar) It takes time and money to build a brand. When companies need to spend resources building a brand, they have fewer resources to compete in the marketplace. These costs positively affect Navistar. IV Advanced technologies are required (Navistar) Advanced technologies make it difficult for new competitors to enter the market because they have to develop those technologies before effectively competing. The requirement for advanced technologies positively affects Navistar. Advanced Technologies Are Required (Navistar)" will have a long-term positive impact on the this entity, which adds to its value. V Entry barriers are high (Navistar) When barriers are high, it is more difficult for new competitors to enter the market. High entry barriers positively affect profits for Navistar. … "Entry Barriers Are High (Navistar)" has a significant impact, so an analyst should put more weight into it. "Entry Barriers Are High (Navistar)" will have a long-term positive impact on the this entity, which adds to its value. This statements will have a short-term positive impact on this entity, which adds to its value. This qualitative factor will lead to a decrease in costs. This statement will lead to an increase in profits for this entity. "Entry Barriers Are High (Navistar)" is an easily defendable qualitative factor, so competing institutions will have a difficult time overcoming it. "Entry Barriers Are High (Navistar)" is a difficult qualitative factor to overcome, so the investment will have to spend a lot of time trying to overcome this issue.

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4. SWOT analyze Strength

Weakness Existing profit margin Existing market share

Monetary assistance provided Domestic market Experienced business units High growth rate Reduced labor costs Existing distribution and sales networks Barriers of market entry Threads

Opportunities

Growing demand New markets ( China, Koria, India) Economic growth Unexpected climate disasters Strict political rules ax changes Price changes Technological problems Increasing costs Rising cost of raw materials Increase in labor costs Cash flow

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Increasing constructions day by day( Truck, Military vehicle demand) Priority for safe of nation (school bus)

Possible Turnaround Strategies

Increase its focus on customers' satisfaction by manufacturing high durability and comfortable and quality trucks that focus on the drivers' comfort and safety and also focusing on fleet manager's need and wants. It should start research for identify and solve for navistar’s Engine trouble and rapidly solve it. 

Get business loan and develop the research and solve the engine problem by research. Page 10

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Collaborate with same technology related company.

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Give priority for research and Development for future innovation creation and existing problem solve

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Attract more buyers Where is needed country specially which is highly doing construction for truck and war situation for military vehicles. As well as who are the considering mainly for safety first their nation.

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B

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d Cost cutting strategy, by implementing high technology in the production of trucks.

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Develop the high efficiency of workers by motivation with explain current situation.

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Penetration to the South American market when there are potentially large markets in

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Countries such as Mexico, Chile, Argentina and Brazil. Navistar can also open up an

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Assembly line in South America.

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Low labor costs

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Enhance the necessary employees like that improved Engineers, Research Assistants, Chemises, Software Engineers as well as reduce extra workers in organization.

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Decrease the salary from employees that specially executive post according to particular finance order until income will be ok.

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Difficulties in penetrating to the South American market.

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Time consuming especially finding strategic alliances to be successful in marketing their trucks in the South America countries. 6.0

Creating of customer loyalty.

Conclusion

According to this analyze Navistar’s some of powerful business strengths have helped to survived in automotive until today. Navistar has faced to the significant finance crisis at the moment that one of mistake they have done regarding their engine manufacturing fail. But at the past Navistar was king of the best engine introduction and truck industry. It is clear that consider about award which they have won. Navistar is trying to regain those using turnaround strategies. As well as it can be a first in automotive industry as same as before with using new strategies and change the previous strategies carefully as above mentioned. 7.0

Recommendation

As my knowledge come up with the best recommendation for Navistar to implement. One of the recommendation is Navistar should focus on the customer satisfaction by producing high durability product, providing comfort and safety for truck drivers, and after sale customer Page 11

. By manufacturing such quality of trucks, Navistar will be able to attract more customers especially in the South American market. Also, by manufacturing good quality trucks, customers will start to have beliefs in the Navistar products, and thus creating customers loyalty. The underpinning reason for maintaining and possibly increase the customer is because those products from other companies and Navistar itself are all alike in technological manner. Consequently, Navistar should be better compete on intangible factors as point to compete. Secondly, the products that this company sells are falls to specialty good category which requires the buyer to really shops around and choose the best one. While the buyer are mostly expert and knowledgeable about the product and need to get products that can return their investment, pursuing customer-oriented action is the best alternative for this company in this industry. Another recommendation that we come up with is for Navistar to penetrate to the South American market where there are potentially large market exist there combined with customerfocused strategy. This will be a great opportunity for this company which really the possibility of its strengths within intersecting with this opportunity and creating leverage. For Navistar to be able to compete in the South American market, it needs to be able to produce good quality and high durable trucks, like Mexican truck fleet which have estimated age of 12 years. Having to open up an assembly line in the South American market will also reduce the labor cost, since labor cost in the South American countries are low. Therefore, it can be expected that the company can realize a high profit margin out of this market. With this recommendation, we hope that this company will be able to maintain its current position in the industry by preventing all possible way that can trigger the problems and constraints from emerging as internal and external factors effecting the company intercepting.

References http://www.reuters.com/finance/stocks/companyOfficers?symbol http://www.nasdaq.com/symbol/nav/recommendations http://www.forbes.com/forbes/welcome/#33ed26b449f8 http://www.wikiwealth.com/five-forces-competitor:navistar:industry-requires-economies http://www.reuters.com/finance/stocks/companyOfficers?symbol=NAV http://www.equipmentworld.com/first-and-10-at-the-50-where-things-stand-with-navistar/

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