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April 3, 2016

Ex Navistar President Gets His

Only truck I ever put in the ditch. But so did Navistar executives,
so I don’t feel so bad!
When I penned the retrospective on the Navistar engine debacle (search Told You So here) I thought I’d said goodbye to the outgoing president Dan Ustian.

Not so.

Seems the Securities and Exchange Commission is not going to let the mendaciousness of his leadership go unpunished.

In a complaint lodged in the US District Court for the northern district of Illinois, Ustian is being called to account for the fraudulent misleading of the investment community about the progress of the 13-liter MaxxForce engine program goals and successes in meeting EPA2010. And, of course, the propping up of the Navistar share value by so doing.

If you go back and re-read what I said in the previous posting, you’ll see I got fired for telling that same investment community in late 2010 that his was a house of cards and that Navistar would never be whole till Ustian was gone. ‘Scuse me if I don’t crow a little here . . .

Anyway, Navistar is also named as a party to the fraud and within moments of the suits being filed has offered to pay a penalty of $7.5 million to settle. The regulatory agency statement said the company and its former leader “failed to fully disclose the company’s difficulties obtaining Environmental Protection Agency certification of a truck engine able to meet stricter EPA Clean Air Act standards.”

Just some of the incredible complexity surrounding
the MaxxForce in a test drive in 2009.
The story broke during the first few hours of the 2016 Mid America Trucking Show, and the 57-page complaint was in my e-mail within moments. Navistar said that “Settling this matter will avoid the expense and distraction of a potential dispute with the SEC” according to a quickly responding Transport Topics. No word if this will be accepted as yet.

The SEC complaint, with a demand for a jury trial for Ustian, is very specific in detailing how Ustian contrived to mislead the investment community and the press through publicly available Analyst Calls right up until the moment in July 2012 when the whole house of cards came tumbling down. 

That was when the company declared it would pursue Selective Catalytic Reduction (SCR) as the technology it would employ to meet EPA2010 and not the Advanced exhaust gas recirculation (A-EGR) championed by Ustian and his bunch of yes-men.

In fact, reading the complaint is very revealing. There were many in the company’s engineering side talking and e-mailing internally that the Navistar was heading up a blind technology alley but Ustian placed a gag order on them. One in particular is a jewel.

In paragraph 60 of the complaint, you can read the following: “In fact, at the time the 2011 Application was submitted to the EPA, the engine described in the application could run only in the testing laboratory. In a February 9, 2011 email regarding the engine covered by the 2011 Application, a Navistar Senior Technical Specialist working on certification matters told other engineers in the certification group:
‘I asked a bigger question. Would this engine ever be drivable in a truck and I got laughs in response.... Translation you have a[n] underpowered 13 liter engine that is coughing, sputtering and wheezing like some terminal cancer patient on a respirator’.”

And how about this: “When Navistar’s Vice President of Powertrain Product Development forwarded this email to Navistar’s Vice President of Integrated Product Development and suggested he talk with Ustian about these issues with the D-cert engine, the Vice President of Integrated Product Development responded that Ustian “totally knows it” and advised him to “[t]ell these guys to not worry about this sh[--] and not keep sending emails to each other.”

Now here’s the big kicker, and it’s there in the indictment as fact. One of the proposed solutions to the problem that the engine would run – just about – in the test lab but could not possibly power a truck was to propose to EPA that there be two lookup tables for the engine controller: one to be used in test, the other when the truck was going down the road. They made this proposal with a straight face but EPA laughed them down. In the now famous Dieselgate, Volkswagen did the exact same thing, and presumably at just about the same time, though without asking EPA’s permission.

The sad thing is that this after-the-fact bolting of the stable door will never reconstitute the fortunes of the many family trucking businesses that had to close their doors because of the unreliability of the MaxxForce and the hubris of one man: Dan Ustian. One has to hope the courts will come down on him like a ton of bricks and put him in the poorhouse along with all those customers he misled and with the financial community he duped.


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