Navistar International Corp. (NYSE: NAV) is making numerous cash-conserving moves as its plants remain shuttered because of supply chain issues and little demand for new equipment during the coronavirus pandemic.
The company said it will build trucks subject to being able to get parts and components and based on market conditions and the health of its workforce. The first part of that calculus is iffy at best.
Navistar is extending the production suspension at its plant in Springfield, Ohio, through early May. The company’s service facilities and parts distribution centers continue regular operations.
“Navistar is not immune to the reality of the COVID-19 pandemic,” Troy A. Clarke, chairman, president and CEO, said in a statement Monday. “The extent of this virus is unprecedented, and our personal lives, businesses and global economies are being impacted by events beyond our control.”
That means protecting the $1 billion in consolidated cash and cash equivalents and manufacturing cash and cash equivalents on hand as of Friday. It is immediately implementing a series of temporary cost-reduction measures that will conserve $300 million in the fiscal year ending Oct. 31. The cuts include:
- Postponing 30% of capital expenditures and 30% of information technology project spending.
- Deferring $162 million in pension contributions until 2021, and employer payroll tax payments and certain Employee Retention Tax Credits. Both are allowed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
- Deferring 35% of Clarke’s $1,027,183 base salary and Navistar Board of Directors’ compensation.
- Reducing the workweek by 20% for contractors.
The base salary of U.S.-based, salaried exempt, nonrepresented employees will be cut 10% to 30% effective April 20 through Dec. 31. It will be repaid with interest no later than March 15, 2021, similar to the approach taken by General Motors Co. (NYSE: GM), where Clarke and several other executives worked before joining Navistar.
Navistar previously deferred merit salary increases and delayed 401(k) company match contributions until 2021. More cuts will be made if needed, the company said.
“We held a strong manufacturing cash position heading into this pandemic, and the actions we are taking allow us to manage cash flow in response to these extraordinary times,” said Walter Borst, Navistar executive vice president and chief financial officer.
“These actions do not impact the longer-term benefits of our Navistar 4.0 strategy but may influence the timing of when the plan’s full potential is realized, which we will reevaluate once the post-coronavirus economy is better understood,” he said.
Navistar 4.0 includes building a new manufacturing plant near San Antonio; increasing earnings before interest, taxes, depreciation and amortization (EBITDA) margin to 12% by 2024 from the current 8%; and achieving a combined 25% market share by 2025 compared with a combined 18.8% share at the end of fiscal 2019.