The writing has been on the wall for a few months now, EGR (exghaust gas recirculation) is dead.  As we know, only one truck builder, Navistar, chose to use EGR to meet EPA 2010 emission standards.  The plan was bold but extremely risky.  If successful, International would have been the only truck manufacturer able to offer a Class 8 rig without a SCR system.  This means no DEF, no extra tanks, no extra plumbing, and no driver training.  I think this would have been a very attractive option to both large fleets and owner operators.  I mean, how can  you make the case against simplicity?

The gamble began to fail early this year when it was announced Navistar’s 13 Liter engines would not be certified compliant.  To skirt the issue Navistar was allowed to pay a fine for every engine produced.  To add a bizarre twist the technology used in EGR engines was developed by the EPA and licensed to Navistar. Strangely it was not advanced enough to meet 2010 requirements.  Another blow came when truck builders already in compliance (Volvo/Mack) sued to the EPA to stop the fines that allowed the sale of non compliant engines.  The basic argument was “it’s not fair to us who played by the rules from day one”.  A federal court agreed and ordered the fines to cease.  No more fines equal no engines sold.

As much as International pushed EGR as the best emission control option the engines themselves had serious problems outside of non certification.  Warranty claims spiked in 2011 resulting in a revision of earnings that lead to a 2nd quarter loss.

Oh, and don’t forget the activist investors buying up stock, takeover/buyout rumors involving Fiat and VW, and top management shakeups and you have the perfect storm.

Yesterday rumors began to circulate that Cummins engines would be available some time in 2013, a claim denied by International.  This seems like a logical choice but goes against the company goal to manufacturer engines in house.  Today news is breaking that Navistar has announced it will move away from EGR in favor of SCR.  The current engine lineup will modified to run the pollution control “standard” of the industry.

I won’t fault Navistar/International for trying to make EGR the golden goose.  Had their plan worked they would have gained immense leverage in the already hyper competitive heavy duty truck market.  However, one has to wonder why there was no backup plan in place other than using emission credits and paying fines.  After all, International had to know the engines didn’t cut emission to the high 2010 standards form day one…right?  It makes me wonder if there is more to the story, after all, there usually is.

Links:

Navistar Expected to Alter Course – WSJ

Navistar Advances After Report on Cummins Engines – Daily Herald

Navistar Needs to Get Engine Certified – Dayton Daily News (nice time line of events)

Navistar Warranty Woes – Warranty Week