3rd UPDATE: Navistar Names Former Textron Chief Campbell to Replace CEO

--Lewis Campbell appointed Navistar's interim CEO

--Chairman and CEO Dan Ustian resigns, effective immediately

--Troy Clarke appointed chief operating officer

(Adds details about activist investors and stock price activity in final three paragraphs.)

 
   By Bob Tita 
 

Truck maker Navistar International Corp. (NAV) appointed former Textron Inc. (TXT) chief executive Lewis Campbell as its chairman and interim chief executive Monday, following the resignation of Dan Ustian.

The management change takes effect immediately as the company aims to distance itself from a failed engine-emissions strategy that has driven Navistar's stock down sharply this year and attracted activist investors Carl Icahn and Mark Rachesky.

Under Mr. Ustian, Navistar repeatedly assured customers and investors for 2 1/2 years that it could succeed with a diesel-exhaust treatment process that ultimately failed to receive backing from federal environmental regulators. Navistar abandoned the controversial, costly emissions strategy in early July and agreed to buy engines and exhaust-treatment components from engine maker Cummins Inc. (CMI).

Mr. Ustian's exit from Navistar had been anticipated since June, when the company's board appointed Troy Clarke to the newly created position of president of Navistar's truck, engine and parts operations. Mr. Clarke, who had been president of the company's Asia-Pacific operations, was promoted to chief operating officer Monday.

Mr. Clarke joined the Lisle, Ill., company in January 2010 after a 35-year run at General Motors Co. (GM, GMM.U.T). Mr. Campbell, 66 years old, also has a GM connection. He spent 24 years at the auto maker in product-design, engineering and manufacturing positions.

The selection of Mr. Campbell and the rapid promotion of an outsider in Mr. Clarke suggests the Navistar board is determined to bring new approaches to a company where most top executives spent decades rising through the company's management ranks.

"Our board and management are aligned around a clear path forward, and we are confident that under the leadership of Lewis and Troy, Navistar will make continuing progress in executing its near-term strategic priorities, driving growth and creating shareholder value," said lead director Michael Hammes in a written statement.

Analysts say keeping Mr. Clarke in charge of the company's day-to-day operations could free up Mr. Campbell to focus on major strategic and financial initiatives at Navistar, including the possible sale of parts of the company.

"He definitely has a bias for action and is not a guy who's afraid to make changes when he sees management changes are warranted," said Stephen Volkmann, an analyst for Jefferies & Co. who covered Textron during Mr. Campbell's tenure. "He has a very return-on-capital view of the world."

In a decade as chief executive and chairman of the Rhode Island industrial conglomerate that ended in 2010, Mr. Campbell managed the realignment of the company's business portfolio, selling its auto-trim and fasteners businesses. Textron's major business lines include Cessna airplanes, Bell helicopters and E-Z-Go golf carts.

But the company stumbled badly during the 2008 recession as demand for corporate aircraft and helicopters plunged. The credit crunch also exposed problems with the company's finance unit, which had aggressively expanded its subprime-lending activities beyond Textron equipment to include projects such as golf courses.

Mr. Ustian's resignation ends a 37-year career with the company. During a nine-year stretch as chief executive, Mr. Ustian nearly doubled annual sales to $14 billion. Mr. Ustian, 62 years old, initiated a series of business expansions and operational triumphs that moved the company away from years of retrenchment and reorganization that followed the breakup of Navistar's predecessor company, International Harvester, in the mid-1980s.

Mr. Ustian, who headed the company's engine business before becoming CEO in 2003, restored profitability for the company's truck business by lowering expenses, engineered the company's first acquisitions and partnerships outside of North America and launched the company's defense business. Its defense business allowed Navistar to offset a steep decline in commercial truck demand with sales of heavily armored patrol trucks for U.S. troops in Iraq and Afghanistan. Navistar has built more than 8,700 Mine Resistant Ambush Protected trucks, also known as MRAPs.

But Mr. Ustian's inability to win U.S. Environmental Protection Agency certification for Navistar's engines ultimately led to his departure. He was an enthusiastic supporter of a treatment system called exhaust-gas recirculation, or EGR, in which hot diesel exhaust is cooled to lower the nitrogen-oxide level before being released through a truck's tailpipe.

Other truck and engine makers concluded that the process alone wouldn't be sufficient for complying with the EPA's 2010 ultra-low nitrogen-oxide standard and opted to combine EGR with another process that filters exhaust through a urea solution.

That process, known as selective catalytic reduction, or SCR, raised the price of new trucks by about $10,000. Mr. Ustian believed Navistar could gain market share by offering a less-expensive treatment option that relied solely on EGR.

But Navistar was unable to convince the EPA to certify its EGR engines. Earlier this year, the company began paying fines for selling noncompliant engines. Navistar's switch to SCR accelerated after a federal appeals court ruled the fines were too low.

Navistar's stock on Monday trimmed most of its early gains, closing up 1.5% at $23.32 a share. The stock price has fallen about 46% in the past six months, as investors have repeatedly shown their frustration with the company, particularly after two straight quarterly losses.

Messrs. Icahn and Rachesky began scooping up shares this spring with the intent of engaging the board in talks about increasing shareholder value. In response, the Navistar board adopted a takeover defense plan in June that has effectively limited the two investors' stakes in the company to just under 15% each.

A representative for Mr. Rachesky declined to comment on the management change at Navistar. Mr. Icahn didn't immediately return a phone call.

--Write to Bob Tita at [e-mail]

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