Navistar International Corp. said Tuesday it intends to close a truck assembly plant in Garland, Texas, by the first half of 2013 as part of its efforts to cut costs.
"Closing a facility is always difficult because of its impact on the many great people who've been part of our company," Troy Clarke, Navistar president and chief operating officer, said in a statement. "But the fact is that Navistar has too much manufacturing capacity in North America, and we must take quick action to improve our business and position the company for long-term success."
Navistar employs about 900 salaried, hourly and third-party temporary workers at the Garland facility. Production will be moved beginning in January 2013 to the company's plants in Escobedo, Mexico, and Springfield, Ohio.
The plant closure is expected to reduce Navistar's operating costs by $25 million to $35 million annually. The company's overall goal is to cut costs by $150 million to $175 million per year.
Navistar has already laid off about 800 salaried workers. The truckmaker expects those job cuts to save the company $70 million to $80 million annually.
Navistar said costs from the Garland plant closure, including buyout packages, are not expected to exceed $10 million before taxes in the fourth quarter. Next year, Navistar expects pre-tax charges ranging from $30 million to $50 million.
Navistar's troubles stem from an engine technology that cost $700 million to develop since 2001 but failed to reduce levels of smog-causing nitrogen oxide enough to meet 2010 federal standards.
Last week, Navistar issued 10.7 million shares of its common stock at $18.75 per share. The cash-strapped company raised about $192 million after discounts and expenses. Navistar said it will use the proceeds for general corporate purposes.
Analysts have raised concerns about the company's cash for months. "Navistar could be forced to file bankruptcy to slash obligations and preserve cash so it can navigate over the next year through its most difficult transition ever," Vicki Bryan, a senior high-yield analyst with Gimme Credit LLC, said in a note to investors Tuesday.
To be sure, other analysts have said that the company's cash burn in the fourth quarter has been better than expected and that the shares offer alleviated cash concerns. "In our view this should largely remove the risk of bankruptcy from the shares," Stephen Volkmann, an analyst with Jefferies & Co. said in a note to investors last week.
In September, Navistar unveiled a plan that includes layoffs in the fourth quarter, potentially selling business units and working on an accelerated schedule to deliver an engine that meets federal emission standards.
The plan was announced by Lewis Campbell, who became interim chief executive in August after the sudden retirement of Dan Ustian.
Campbell said Monday at a conference in Las Vegas that he is willing to look at the possible sale of any part of the business as he tries to return the company to profitability but he is not willing to consider fire-sale prices for its assets.
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