The Business of Supplying The Transportation Business - Tires and Trucks

The Wall Street Journal reported on two major industry suppliers today - Navistar and Michelin.  For Navistar, the story continues to be bleak.  Due a major, almost existential mistake with how they dealt with emissions control. (went against DEF initially) they have been struggling since 2010.  In fact, they essentially pay fines for the trucks they sell because until recently, when they teamed up with Cummins, their trucks violated EPA standards.

The WSJ reports the following statistics for Navistar:

• 34% drop in truck sales
• "higher" warranty costs - an increase of $164M
• Ending the quarter with 15% market share which is down from 25% at the end of 2009 (A direct cause of this is the miss on emissions)
• Loss of $109M in the quarter v. last year a loss of $45M (Truck Business)
• Overall, Navistar lost $374M in the quarter ($4.65 per share) v. $172M ($2.50 per share) last year for this quarter. 

The basic story for Navistar is they went all in on their own emissions system while the rest of the industry went the route of using Diesel Exhaust Fluid (DEF).  It was a "bet the farm" move and it appears they may have lost the farm. 

The second report was on Michelin.  Michelin of course is a French company and they are highly exposed to Europe.  This is causing a problem for them and the numbers in Europe are staggering.  Think of this:

• Demand for truck tires in Europe is down 25% since 2007.  This is a key indicator for how bad the economy is on the Continent.  This decrease is due to lower miles which is due to just less product being moved. 
• Middle East and Africa - down 12% and 18% respectively.
• While South America appears to be booming, sales globally are down 5.6%
• Volvo truck sales are down 7% in April in Europe.

These two companies are not in the same situation.  Michelin is all about being in a bad market - Europe.  Navistar is a self inflicted wound which may not be a foot shot as much as a head shot.  

If the state of transportation is one considered fairly bland - not huge growth and not huge deficit - the work of supplying the transportation industry is downright tough.