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Will Navistar International (NYSE: NAV ) ever get it right? The poor truck maker, which designs and manufactures integrated truck bodies and engines, has had a rough year. A series of missteps and misfortunes have sent shares tumbling nearly 70%. But now, a new CEO is at the helm and aiming for a turnaround. The odds look tough, but a golden opportunity awaits Navistar, if only the company would capitalize on it.
Trouble started for Navistar when it broke with industry convention over the past few years by developing a controversial emissions reduction technology in its engines. This fall, that technology failed to pass EPA regulations, forcing Navistar to abandon its own designs and turn to a competitor, independent engine maker Cummins (NYSE: CMI ) , to provide compliant engines for its vehicles. Since then, Navistar has withstood the ouster of its CEO, a vicious proxy battle with activist investor Carl Icahn, and, most recently, a shockingly high $400 million charge in 2012 for warranty expenses as customers find fault with Navistar's products. Over the past few years of problems, Navistar's share of the truck market has plummeted from 31% to 19%.
Navistar could have avoided or mitigated these problems if it had become more serious about natural gas engines sooner. Natural gas-injection engines like those designed by engineering firm Westport Innovations (NASDAQ: WPRT ) and manufactured by Cummins, through joint-venture Cummins Westport, burn so cleanly that they don't require any additional emissions control components. Further, natural gas is dramatically less expensive than diesel, providing six-figure cost savings over the life of a truck at current prices. Clearly willing to buck the trend on engine technology, this approach could have made Navistar a leader instead of a laggard.
There's reason to think Navistar might still turn to natural gas more aggressively. Last February, Navistar created a partnership with natural gas refueling infrastructure provider Clean Energy Fuels (NASDAQ: CLNE ) to advance and promote adoption of cheap, clean natural gas in the trucking industry. The program "offers customers a quicker payback on their investment plus added fuel costs savings from day one of operation."
Clean Energy unveiled a route map of 150 stations available to fuel long-haul, cross-country trucking routes. Navistar announced plans to release the broadest selection of natural gas-powered trucks in the country, taking the top spot away from current incumbent PACCAR (NASDAQ: PCAR ) , which currently holds 40% of the market, offering six natural gas trucks through its Kenworth and Peterbilt brands.
Navistar also announced that its first vehicle using the industry-leading ISL-G natural gas engine from Westport Innovations, the TranStar CNG, would come out in late 2012. As infrastructure is built out to accommodate natural gas trucks, the compelling economics of running a natural gas fleet will only grow stronger. If Navistar could create a leadership position in this market, its future would look as bright as that of natural gas.
Late 2012 is here, though, and the TranStar CNG is not. During the past two conference calls with new CEO Lewis Campbell, natural gas didn't come up once. It seems, unfortunately, that the company is so stuck on dissecting the mistakes of the past few years, it can't concentrate on the opportunity of the next few decades. Much as I'd hoped for a successful turnaround at Navistar, I'm no longer holding my breath. The best way to play the natural gas revolution? I'd look to the engines that would power Navistar's new offerings, and that already power industry-leader PACCAR: Westport Innovations engines, all of them.
As the most advanced designer of engines powered by natural gas, Westport Innovations is a small company with a big goal: to lead the world in transitioning away from traditional oil-based fossil fuels in favor of abundant, cheap, and clean natural gas. The company has a price tag large enough to match its ambition and will need to grow revenue quickly to justify sky-high expectations. To help you determine whether Westport Innovations is right for your portfolio, The Motley Fool has just released a brand-new premium report breaking down the company's opportunities, competitive advantages, and risks. To get started, simply click here now for instant access.