Risk & Compliance

Navistar Settles Defective Engine Suits for $135M

The settlement resolves the class-action claims of truck owners who alleged Navistar failed to disclose a defect in engine exhaust-treatment systems.
Matthew HellerMay 30, 2019
Navistar Settles Defective Engine Suits for $135M

Navistar has agreed to pay $135 million to truck owners who claimed it failed to disclose or correct a defect in engine exhaust-treatment systems.

The settlement of several class actions, which was announced in a regulatory filing, covers owners of about 65,000 heavy-duty trucks sold between 2010 and 2013.

Under the plan, owners can choose between drawing compensation from an $85 million cash fund or taking a share of rebates worth $50 million toward the purchase of a new truck. Navistar also would set aside $24 million to cover settlements for lawsuits that are not included in the agreement.

The company has spent more than $2 billion on warranty claims, engine retrofits and truck buybacks that nearly forced it into bankruptcy.

“This is an attractive way for our customers to close out this chapter,” CFO Walter Borst said.

The litigation involved Navistar’s MaxxForce line of engines. As part of a cost-cutting strategy, the company used exhaust gas recirculation (EGR) to meet 2010 emissions standards for the engines rather than the selective catalytic reduction (SCR) being used by other truck and engine makers.

The trucker class actions alleged the EGR process exposed critical components in engines to excessive levels of soot that caused engines to fail.

“By the time Navistar switched to the [SCR] system … customers were fleeing the wave of breakdowns,” The Wall Street Journal said, noting that Navistar’s share of the U.S. heavy-duty truck market has shrunk to about 14% from a peak of 26% in 2010.

Navistar previously agreed to a $7.5 million settlement of U.S. Securities and Exchange Commission allegations that it misled investors about the MaxxForce engine technology. A Tennessee jury in 2017 also awarded $30 million in damages to a trucking company that claimed it had lost more than $35,000 per truck in trade-in values due to the engine flaws.

In the regulatory filing, it said it would record a $159 million charge for settlement costs in its second-quarter results, which would wipe out the net income of $78.6 million that analysts expected.