When Steve Keate arrived at Navistar International Corp. in 1995, his job as corporate controller was to impose financial rigor.
Now, the key to the company's future lies in the 43-year-old executive's hands. As Navistar's newly named president, Keate must oversee the launch of Navistar's Next Generation Vehicle, a $650 million project that embodies the truck group's future. He spoke recently with Staff Reporter John Couretas. Edited excerpts:
What's the heavy-truck outlook through 2000? Is your backlog of orders holding up well?
This year is a record by any measure. Backlogs are too high, actually. We haven't had enough capacity as an industry, but now more is coming on line. Next year, we're looking at some softening in demand. Order rates for the past eight months have been coming down. But again, it has been coming down from record levels to just strong demand. In Class 8, we're looking at about 280,000 units this year for Canada and the United States.
Where will that number go next year?
We don't speculate on that, in terms of actual numbers. We're looking at a slightly lower number but nothing dramatic. We don't think there's a big downturn coming.
You're new in this job. Describe your management style.
My style is one of candor, open communications, teamwork and accountability. I've been spending a lot of time with the organization stressing those characteristics. We've achieved a lot the last couple of years, and we need to achieve a lot more going forward.
In managing its business, Navistar has a very strong focus on return on net assets. How is the company doing?
Our goal is to exceed 15 percent return on net assets over the business cycle. We are hitting that objective.
But we happen to be on the fat side of the business cycle right now.
On average, you look at a period like we're in right now, you should be making a lot more than 15 percent. When - and if - the industry turns down, you recognize you're not going to make as much money. But over the cycle we have to exceed 15 percent.
Truck buyers are much more focused these days on the total cost of operating a vehicle rather than simply the purchase price. Does that change the way you market International trucks?
Our customers are becoming more and more sophisticated. Where we think we can win in the future is appealing to those customers who really value life-cycle economics. That's a combination of the purchase price of the vehicle, the operating cost, the maintenance cost and the residual cost of the vehicle when it's sold. How do we lower maintenance costs? How do we improve aerodynamics and fuel consumption? How do we raise residual values?
If you're successful in all these areas, does that build customer loyalty for the International brand?
Absolutely. If you look at it from the perspective of life-cycle value, then our customers are going to make more money than their competition. There's the ultimate loyalty factor.
Your company is very focused on reviving International as a brand. Navistar never really clicked with truck buyers, did it?
The company lost its way a bit in the transition from International Harvester to Navistar. We got confused as a company, and we weren't quite sure what the brand was. Was it International or was it Navistar? Clearly, we're International. That's what our customers call us. Over the past couple of years, as part of the turnaround of this company, we recognized that International is the brand.
What does the brand mean to the marketplace?
Reliability, durability and the fact that we have been a full-line producer of trucks and buses for a long time. Dealers always knew this, and they never tried to change. They didn't want to change because they recognized that customers valued International, not Navistar.
Sometimes dealer instincts are pretty good, aren't they?
They've got their own pocketbook at stake here. And they're going to make the right decisions.
Your Next Generation Vehicle is due out in March 2001. How will that vehicle improve your ability to build trucks more profitably?
It's going to take the industry by storm. We're doing it with a focus on this life-cycle value equation. We're not going to try to be all things to all people. In the design phase, we understood that the goal was to maximize life-cycle value. Our goal is to make our customers profitable.
What does the Next Generation Vehicle mean to Navistar, the company?
It is unarguably the largest product development program the company has ever done on the truck side. We're going to invest $650 million in this new vehicle. That's a lot of money by anybody's standards.
The Next Generation Vehicle also introduces a new production system. What's different?
It's serving as the foundation for completely restructuring the way we design, build and assemble products. There's a lot of modularity, which is basically subassembly buildup in the plants. We're going to high levels of automation. For instance, we're going to reduce the amount of hours in cab assembly by about 80 percent. We're using a piece of equipment that Nissan is producing for us.
What will be different about your parts supply system when you produce the Next Generation Vehicle?
A lot of the subassembly activities that are currently done in the plant, they're going away. They'll be replaced by built-up modules produced by suppliers outside the plant.
And the new agreements you have in place with the UAW allow you to do that?
This is going to result in a dramatic reduction in the hours we need to produce a truck. That was part of the breakthrough labor agreement we had with the UAW.
The principal element in the negotiations was coming to an agreement that allowed us to go to outside-produced modules. Obviously, that has a significant impact on the number of employees. Our Springfield, Ohio, plant will be a much more efficient plant.
Are we going to see dramatic job cutbacks because of this?
Very big. We have roughly 4,500 employees in the Springfield area; that's the body plant and the assembly plant. We're going to go down to about 2,500 after the Next Generation Vehicle is fully launched. So it's a huge change in hours per unit.
It's an older work force, and we are trying to ride the attrition curve down, so as people leave from retirement, that will get us to where we need toy be.