Ustian Out as Navistar Big Wig

Well, there you are. The architect of Navistar’s plunge into dire straits, Dan Ustian, has pulled the plug. We’ll likely never know what went on, but his departure from the ailing Navistar has been widely anticipated, at least in this corner. He is being replaced as chairman by former Textron CEO and GM veteran Lewis Campbell. Campbell will be interim CEO until the company appoints a replacement. Troy Clark will serve as President and COO of Truck and Engine operations.

It would have been difficult for Ustian to remain chairman, president and CEO after the debacle of advanced EGR vs. SCR technologies and heavy-duty engine development to meet the latest EPA emissions regulation. The turnaround and adoption of the much denigrated technology pursued by every engine manufacturer in the world except Navistar to meet strict NOx emissions was certainly embarrassing but it was also a $700-million mistake.

The capper had to be the August Forbes article, most appropriately headed Death By Hubris? The Catastrophic Decision That Could Bankrupt A Great American Manufacturer . This article, as well as my blog in July “Told You So” places the blame for Navistar’s disastrous stock performance and potential bankruptcy on Ustian’s insistence in “differentiating the company” by the pursuit of its unique emissions technology. Ustian was not alone, though, in this misguided approach. He was bolstered by a cadre of senior managers who supported his insistence that Navistar should offer a differentiated approach to EPA2010, one that would offer a simpler customer interface than the added complexity of selective catalytic reduction (SCR) offered by every other North American competitor.

Ustian and his executives maintained that SCR technology is complex, adds weight and requires the addition of another driver-replaced fluid on the vehicle. Many customers agreed that this simplified approach suited their operations better and bought into the alternate approach. Unfortunately, the technology was not ready for prime time and the trucks have proven unreliable.

Now, Navistar faces not just an expensive technology turnaround and a new investment into SCR – likely partnering with Cummins Emissions Solutions – but also huge warranty exposure for those trucks sold with advanced exhaust gas recirculation (A-EGR). An even bigger unknown is what will happen in the courts as disgruntled fleets band together to sue the company for selling unfit vehicles.

In the interim, said Ustian in public statements, Navistar will continue to sell its EGR trucks and buses until a satisfactory SCR solution is worked out. This will also be a burden on the company, as the vehicles will carry non-compliance penalties (NCP) for exceeding the NOx levels required since January 1, 2010. These NCPs had been set by the Environmental Protection Agency at close to $2,000 per vehicle, but that number was challenged and has since been thrown out. The court is expected to set a more realistic penalty within a matter of days and will likely be nearer $10,000 or more. This equates to more woe for the company, led down this blind technology alley by Ustian and his cronies.

People close to the company say the debacle is not Ustian’s fault alone. They offer that Ustian was a finance guy and didn’t know who in the company to believe when it came to technology That’s a point amply made in the Forbes story. But he was paid the big bucks to know. And didn’t.

So, goodbye Dan.