Navistar CEO Ousted After Failed Diesel Bet

Navistar International Corp replaced Chief Executive Officer Daniel Ustian with former Textron Inc CEO Lewis Campbell on an interim basis, after the truck maker's bet on a new generation of diesel engines failed to live up to its promise.

The company, which was hit hard by its failed engine strategy and has withdrawn its 2012 earnings forecast, also promoted Troy Clarke, currently head of its truck and engine operations, to president and chief operating officer.

Navistar announced the executive changes on Monday morning but did not give a reason for Ustian's departure.

Ustian, who spent 37 years at Navistar, was ousted over the weekend after the board lost confidence in him and his engine strategy, a person familiar with the situation said. The source was not authorized to speak to the media and asked not to be named.

After an independent probe, the board concluded that Ustian had made a wrong bet on a new generation of diesel engines and his technology solution would not work on trucks, the person said.

Campbell, who will also serve as Navistar's executive chairman, is tasked with stabilizing the company, restoring relations with long-time suppliers, and launching the search for a permanent chief executive, the source said.

Shares of Navistar, which had shed nearly half their value in the last six months, were up 2.3 percent at $23.52 at midday on Monday on the New York Stock Exchange.

"Naming new Chairman/Interim-CEO and new President removes a key sticking point from the investment decision for many investors," Robert W. Baird analyst David Leiker said in a research note.

"While we are supportive of Dan Ustian's energy and focus as CEO, the challenges bringing new technology to market proved too great," Leiker said.

Wells Fargo Securities analyst Andrew Casey said: "The departure of Ustian is not a surprise after the failure of the company's engine strategy. The surprise is the length of time that it took for this to happen."

For much of the past year, Navistar has been struggling to win approval from the U.S. Environmental Protection Agency for a new diesel engine technology that would lower emissions of nitrogen oxide, a pollutant linked to asthma, without using urea. Urea is a raw material used in the manufacture of many chemical compounds, including ones used in automobile systems.

Navistar won a reprieve in early August after U.S. regulators submitted a final rule allowing it to continue to sell engines that do not meet U.S. emissions standards as long as it pays fines. [ID: nL2E8J67LK]

Last month, Ustian reversed course and said the company would begin using urea, a move that amounted to adopting the dominant technology and one used by rivals including Paccar Inc and Volvo AB. To do that, Navistar will begin selling trucks with engines made by Cummins Inc early next year.

Navistar has also become a target of activist investors, with about 45 percent of its outstanding stock held by three big investors: billionaire Carl Icahn, hedge fund MHR Fund Management and asset manager Franklin Resources Inc.

The company adopted a "poison pill" defense in June, intended to keep any investor from acquiring a 15 percent or greater stake in the company.

Navistar's special committee of the board has also hired Goldman Sachs Group Inc for strategic advice, and used executive search firm Heidrick & Struggles to identify interim CEO Campbell, people familiar with the matter said.

Campbell, 66, was Textron's CEO from 1998 to 2009. He previously spent 24 years at General Motors Co in various executive roles.

"Lewis Campbell is a high-caliber executive who brings to Navistar deep and broad strategic, technical and operational skills and a proven track record of leadership with global industrial companies," said Michael Hammes, Navistar's independent lead director.