As Troy Clarke was driving across Wyoming, trying to escape into retirement from the wreckage of a bankrupt General Motors, his phone rang.
Navistar Chief Executive Daniel Ustian wanted Clarke to take charge of the truck manufacturer’s Asia Pacific division. Though Clarke most recently was president of GM’s North American operations, he had worked for the automaker all over the world, including stints in Mexico, Singapore and Shanghai.
Clarke, now 61, figured he’d give it a try, unaware back in 2010 that he was walking into another automotive mess – one in which he would eventually be tapped to take over the chief executive suite.
Analysts now credit Clarke for saving the truck manufacturer, praising his moves to slash Navistar’s production costs by 38 percent, repair fractured relations with a frustrated dealer network and guide the company back into the work-truck market.
“If they didn’t make a lot of these cost changes over the past few years, I don’t think they’d be in a position to survive,” said Neil Frohnapple, an analyst at Longbow Research.
Clarke’s retooled Navistar also has attracted the attention of other truck manufacturers. On Tuesday, Volkswagen’s truck division said it will invest $256 million in Navistar at $15.76 per share and appoint two directors to Navistar’s board. The deal gives Volkswagen a 16.6 percent stake in Navistar. The companies will share technology, components and research.
In June, Navistar reported net income of $4 million, a massive swing from last year’s second-quarter loss of $64 million and its first quarterly profit in more than three years.
Although Clarke started out heading Navistar’s international business, the management team soon realized it needed his manufacturing expertise from GM to avert a looming disaster.
The trouble started when the company made the wrong bet on diesel-exhaust technology to meet new federal standards for nitrogen oxide emissions. Navistar attempted to introduce trucks that relied solely on a pollution-cutting technology known as gas exhaust recirculation. But that system prevented the company from producing the 500- to 600-horsepower engines needed for a heavy-duty work truck, forcing Navistar to exit that segment of the market.
The sole reliance on gas exhaust recirculation also created reliability and fuel economy issues for its other trucks and tarnished the manufacturer’s reputation. Sales plunged, warranty costs soared and losses climbed.
The company, which makes International trucks, military vehicles, diesel engines and a line of school buses, lost $4.7 billion over the past four fiscal years.
Dealer ire rose with customer complaints.
“The elephant in the room for us is we disappointed a lot of customers between 2010 and 2014,” Clarke told Trucks.com in an interview at Navistar’s headquarters in Lisle, Ill.
“This industry isn’t that large – there are 300 customers that buy 80 percent of the trucks in the industry. At some point in the past we violated their trust and we have to re-earn that,” Clarke said. “The rate at which we can re-earn that is of great importance to us.”
As problems mounted, Clarke’s family experienced déjà vu. He was once again a senior manager at deteriorating automotive company that was in danger of failing. That’s when Navistar’s board of directors asked Clarke to replace Ustian as chief executive.
“My wife was saying, `Are you sure you want to do this? Doesn’t this feel like GM in the last days?’ ” Clarke said.
Clarke told her no, saying he thought he could get the truck maker back on track. He took over as chief executive in 2013, when the company needed a dramatic reorganization and a culture shift.
First, he said, everyone had to relax. Clarke changed the dress code. Suits were out, replaced by jeans and polo shirts.
People were told to speak up and “pull the cord” when, for example, they saw problems on the assembly line or an error in a presentation, he said.
But for Clarke and his team, that was just the beginning.
He examined the organization to get to the root of Navistar’s problems. What Clarke found, he said, was that problems went well beyond the company’s failed engines – the entire company needed an organizational overhaul.
Navistar had a “divisional feel to it”– as it was composed of an engine company, a truck company, a concrete company and a motor home company that each operated independently of one another, Clarke said.
“Our first battle cry was one company – One Navistar is what we called it,” he said.
Management wasn’t fully engaged.
“The worst thing you can do is pretend a problem isn’t there. And the second-worst thing you can do is hide the issue,” said Clarke, the son of an autoworker from the Pontiac, Mich., area.
There was too much intramural scrimmaging going on, with the divisions trying to charge other parts of the company as much as they could for any services so that they could cover their budgets, he said.
“That kind of thing doesn’t help the customer,” he said, “or help the performance of the products.”
Navistar then consolidated most of its operations and workforce into a six-building campus in Lisle, a small suburb 28 miles west of Chicago.
Clarke closed facilities in Huntsville, Ala.; Garland, Texas; Indianapolis; and Union City, Ind. And it sold six of its companies or subsidiaries, including Wisconsin Foundry, Monaco RV and Continental Mixers.
He trimmed Navistar’s workforce by about 4,000 employees to its current 14,400. Losses started to shrink from a high of $3 billion in 2012 to $184 million last year.
Along with the culture shift was a renewed emphasis on new and improved products. Navistar is creeping its way back into the heavy-duty work-truck business with its line of HX series vehicles launched earlier this year – a segment it left about five years ago. The company will release a new or rebuilt product every quarter through 2018.
Clarke also is working to repair the strained relationship with Navistar’s dealers.
The truck maker’s former management was confrontational and difficult to work with, especially considering the problems with Navistar’s troubled diesel emissions control system, said Mike Waters, president of Waters Truck and Tractor Co., which operates six dealerships in Mississippi.
The company now allows dealers who sell its International trucks, and their drivers, to offer input into vehicle design.
“It’s a positive dialogue – a challenging dialogue at times. We don’t always agree on how to solve a problem, but it’s what I’d call a healthy, open discussion,” Waters said. “It’s not a dictatorial-type environment.”
Despite the progress, Navistar is still driving into headwinds as it struggles with an industrywide downturn in the market for big trucks.
Industrywide orders in the heaviest Class 8 weight segment in July fell almost 58 percent from a year earlier to 10,358 trucks, the lowest level in almost six years, as shippers stopped buying because of tepid freight demand, according to ACT Research.
Daimler Trucks, owner of the rival Freightliner brand, cut its annual forecast for total industry sales in the U.S. by 15 percent earlier this year, saying its sales will be “significantly below” the prior year’s sales. Slowing sales have led to layoffs by manufacturers. Daimler said in June it would cut 1,240 workers in North America, while Volvo said it let go 800 employees at a Virginia truck plant in two rounds of layoffs this year.
The Navistar of 2012 likely would have folded or been acquired at a discount in an environment such as this, Frohnapple said. “But I think they have a strong enough balance sheet to navigate their expectations for the rest of this year and into 2017.”
The company is now healthy enough to survive even a 5 percent to 10 percent drop in Class 8 truck sales, he said.
Frohnapple credits Clarke and Walter Borst, Navistar’s chief financial officer, for the turnaround.
“They were dealt a very tough hand,” he said. “I think they would admit the turnaround has taken longer than they’d hope, particularly recovering their market share, but they have the right people in place and have made the necessary moves.”
Clarke believes the traditionally conservative truck industry needs to work more like cellphone companies, providing constant upgrades and improvements.
“What I think will take place in 10 years will probably happen in five,” he said. “It’s going to change at the clock speed of the IT industry, not the clock speed of the trucking industry.”
Looking back, Clarke is glad he answered that call as he was driving across Wyoming.
“I spent a lot of my career fixing things and making things better,” Clarke said. “So the opportunity to experience that one more time before I drift off to retirement is something that’s worth doing.”