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Navistar International Surges On EPA’s Final Ruling on Engines

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The stock price of Navistar International Corp (NYSE:NAV) surged to as much as $23.49 per share during the midday trading today, following reports that the Environmental Protection Agency (EPA) approved the sale of engines that did not meet the carbon emissions standards, but the company will pay a higher fine of $3,800 per engine.

Navistar International Surges On EPA’s Final Ruling on Engines

In a statement, the EPA said, “The flexibility allows manufacturers to continue producing and selling engines that come close to air pollution standards as they work toward full compliance.” The EPA increased its penalty from $1,919 to $3,800 per engine, to remove the competitive disadvantage faced by manufacturers that met the carbon emissions standards.

Tony Clarke, President and COO of Navistar, said the final ruling of the agency allows the company to provide clarity to its customers and dealers with the certainty that it will transition to a clean engine technology.

In 2001, the EPA required manufacturers to comply with the the Clean Air Act, and required a 95 percent reduction of nitrogen oxide emission from heavy-duty diesel engines by 2010. Navistar invested $700 million in a technology called exhaust gas recirculation to comply with the emission standards set by the agency but it was a failure. The truck maker informed the agency that it was running out of credit.

In response, the agency issued an interim rule last January that it will allow Navistar and other truck manufacturers to continue to sell their non-compliant engines, but they would have to pay a fine of $1,919 per engine.

Navistar’s competitors, including Mack Trucks Inc and Volvo Group North America Llc filed a complaint against EPA claiming that the new ruling was unfair and it gave a special treatment to Navistar.

In June of this year, the Court of Appeals found that the EPA violated the Administrative Procedures Act, by issuing the interim final rule (IFR) without issuing a formal notice and receiving comments. The court stopped Navistar International Corp (NYSE:NAV) from paying a fine to be able to continue selling its non-compliant engines.

Since the court ruled against the EPA’s IFR, Navistar’s stock value went down by more than 50 percent. During the second quarter of the current fiscal year, the company reported $172 billion revenue loss.

The company will possibly go out of business without the EPA final ruling.  A report from Springfield News cited documents from the federal court, stating an estimate from the EPA, that  the company’s inability to certify Class 8 engines its 2012 model will cost Navistar International Corp (NYSE:NAV) billions of dollars and cut thousands of jobs.

Earlier this week, Navistar International Corp (NYSE:NAV) CEO Dan Ustian announced his resignation from the company, effective immediately. The reasons for his resignation were unclear, though many speculated that he was pressured by the board to step down after 37 years of service.

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