Q&A: Putting "The Worst of Times" behind Him

Navistar's John Horne on its $3 billion modernization--and its new partner

Navistar International Corp. (NAV ), the No. 3 builder of big trucks in the U.S., is still trying to shake off one of the most painful years in its 100-year history. In February, 2001, a man who had been fired years earlier returned to the company's truck-engine factory in Melrose Park, Ill., heavily armed, and started shooting. Before committing suicide, the gunman killed four former co-workers and wounded four others. The rampage stunned Chairman and CEO John R. Horne and left his entire 15,900-employee workforce in shock and grief.

Meanwhile, the company's business was skidding. Over the past two years, sales of Navistar's freight trucks and school buses plunged 31%. As a result, the company swung from record earnings of $544 million in 1999 to a modest profit in 2000 and a $23 million loss in 2001 on $6.7 billion in sales. And with unit sales down an additional 16% in its first quarter, which ended Jan. 31, Navistar is poised to lose money again in fiscal 2002.

Despite all of this, the 64-year-old Horne believes the picture will be brighter by the time Navistar celebrates its centennial this August. He has reason to hope. Navistar recently completed a five-year, $3 billion push to modernize its manufacturing operations, which stretch today from big-rig assembly in Canada to a new diesel-engine factory in Brazil. Last year, the company formed a 50-50 venture in Mexico with Ford Motor Co. (F ) to make 6-wheel, short-haul trucks. Navistar also rolled out its first new line of International-brand trucks since the 1980s, and it plans to launch five more models this year.

Investors like the way things are going. Driven in part by the public's interest in cyclical industries on the cusp of recovery, Navistar's share price has leaped 75% over the past 12 months, to $46--the highest since January, 2000. Horne recently invited BusinessWeek correspondent Michael Arndt to the company's Warrenville (Ill.) headquarters to review the past year and lay out his hopes for 2002.

Q: Let's set aside the shootings for a moment. How would you characterize business over the past year?

A: How's it go again? It was the best of times, it was the worst of times. It certainly was the worst economy we've seen in the truck cycle going back to at least 1991. Volumes are off; pricing is off. It's been horrible. But it's been the best of times because we're changing the company. I look back at 1997, when we put our new strategy in place. We were really struggling in the truck business. We hadn't done a new truck in eons. So here we are today, a little over four years later, with a new medium-duty International truck.

Q: Have your production methods changed, too?

A: We have a whole new way of designing and manufacturing trucks. We put in a new body-press line in our main truck plant in Springfield, Ohio--four presses in a row, about 45 feet tall--that stamp big metal panels, such as roofs, doors, and floors. We can change that line in less than 10 minutes. That's Toyota speed. We also have something called an intelligent-body assembly system. Every truck cab goes into an inspection booth. There are 35 or 40 laser cameras that pick up key locating points in the cab. Each cab is 82 inches wide. The whole variance in that cab is now less than the thickness of a dime.

Q: That should help when the economy recovers. But are you frustrated by how long it's taking the economy to turn around?

A: No, because it happens to us every 10 years. We had a downturn in 1981-82 and then again 10 years later. Now, we've got another one. The severity surprised us, but not the fact that it was occurring. We're in much better shape to get through it than ever before. Even in a down economy, we're close to breakeven. In the past, we couldn't do that. We're redesigning the company's operations so as we go back up the cycle, all our costs will be variable.

Q: How do you do that?

A: One way is to avoid over-hiring staff by putting in more overtime when times are good. Our new bus plant in Tulsa has an interesting design that we might be able to apply more broadly. The bus business is seasonal. Everybody wants their bus before school starts, but nobody wants one at Christmastime. So we have peak periods when we have to build lots of buses. Therefore, we designed the operating process at the Tulsa plant so the basic workweek is four 10-hour days. At the top of the season, you can add any part of a Friday and any number of Fridays, and people still have weekends off. At the bottom of the season, they've still got 40 hours of pay and none of their friends are laid off.

We've been doing variable costs elsewhere. Going up the last cycle, I encouraged the engineering department to farm out 20% of their work. That way, when we hit the downturn, they could bring that work back in-house and not lay off our people.

Q: Globalization is one of the overarching trends in manufacturing today. Navistar has expanded into Latin America, but no farther. Do you need to be bigger?

A: We must have scale, and our joint venture with Ford allows us to get that. We're going to add another 20,000 or so units to our medium-truck business through that joint venture. Just on purchasing, we expect to save more than $7 million per year on only three components: transmissions, axles, and cooling systems.

Q: Are there other benefits to working with Ford?

A: We have a concept of another product line we're working on with Ford. It is a little truck that has a Mazda cab, which is a Ford brand, on top of a Ford chassis and transmission. It has our new V-6 diesel engine. When you get all done with this, who knows where this product is going to be sold around the world? But remember, I said Mazda, so you might have some idea.

We're going to be bigger. But we need to work with existing distribution systems because to go out and start a new distribution system on your own is ungodly expensive.

Q: Given your tight partnership with Ford, has the ouster of CEO Jacques Nasser and his team affected your relationship?

A: No. We've got long-term contracts through 2012 on the engine side of our business. We've got a lifetime contract on the truck business. It truly is a joint venture, 50-50. But whenever a relationship changes, there's always a time when you've got to develop the trust again. I see nothing, however, that says our relationship should be hindered. I see nothing that says Ford is no longer a great company. I have a saying: "When you're doing well and they're praising you, you're really not that good. And when things drift a little bit, you're really not that bad."

Q: The shootings occurred just over a year ago. Has the company recovered?

A: It was a horrible experience--the sort of thing that always happens to somebody else. And until it happens to you, you can't know how horrible it really is. You really can't prevent something like that. When somebody comes in with guns, they're going to come in, whether it's your office or my office. But I was very proud that instead of running around pointing fingers, we took care of our people.

Q: Are things back to normal?

A: They're as normal as things can be. Take September 11, which affected the whole country. Is the country back to normal? Eventually, you accept that it happened. You still grieve about it, but you get on with your business and lives because you can't do anything about what happened. About a month after the killings, I spent about a half a day just talking to the people at that plant. We had a memorial service last summer to dedicate a stone monument with the faces of each of the victims etched on a side. We also had a moment of silence at 9:40 a.m.--a year later to the minute--throughout the company.

Q: At 64, you've been with Navistar 35 years and chairman since 1996. How long do you anticipate staying on?

A: The board will make that decision. What I don't want to do is to hang on too long. I've seen CEOs do that. It's a bad thing when a CEO thinks he's the heart of the company and it can't get by without him. That's when damage is done. I think there will be an orderly succession someday, and it won't be when I'm real old.

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