Navistar CEO cheered by JB Hunt buy but cautious

Navistar CEO Daniel Ustian speaks during the Thomson Reuters Manufacturing and Transportation Summit in Chicago May 11, 2010.

CHICAGO (Reuters) - The top executive of Navistar International Corp (NAV.N), a U.S.-based vehicle maker, said on Tuesday he is beginning to see some signs of improvement in the hard-hit commercial truck business -- though he cautioned "it's still very tough out there."

Speaking at the Reuters Manufacturing and Transportation Summit in Chicago, Daniel Ustian also said that a long-term contract Navistar announced on Tuesday to supply J.B. Hunt with trucks over the next five years was a powerful vote of confidence in his company's strategy of migrating customers from traditional 15-liter engines to more efficient 13-liter engines.

J.B. Hunt, which has a fleet of about 9,000 trucks in all, had for years been using vehicles made by Daimler AG (DAIGn.DE) subsidiary Freightliner equipped with 15-liter engines. Ustian predicted the contract to deliver 5,000 trucks with 13-liter engines would force other big trucking companies, which have been hesitant to scale down their powerplants, to reconsider.

"This helps us," he said, "because now it forces the other guys to say, 'Well, if Hunt's doing it ...'"

News of the contract sent Navistar shares up as much as 9.3 percent in trading on the New York Stock Exchange on Tuesday. They ended 6.65 percent higher.

Ustian said truck manufacturers, who have seen industry-wide sales in North America fall more than 50 percent over the past three years as a result of the downturn, were still struggling. But he was encouraged by some preliminary signs of a rebound in freight volumes, which could ultimately translate into new orders for trucks, which can easily cost $100,000 apiece.

"Our customers are moving more goods, I think their utilization of their equipment is good, in fact some of our customers tell us they're turning away orders or potential orders," he said.

But he cautioned that "it hasn't totally reached the buying of trucks yet to any degree. It's still very low. As an industry we're still less than half of where we were just three years ago."

EYES SOUTH AMERICAN GROWTH

Navistar, based in Warrenville, Illinois, makes International brand commercial trucks, IC Bus branded school and commercial buses, MaxxForce brand diesel engines, Monaco brand RVs and Workhorse brand chassis for motor homes and step vans.

Ustian said Navistar's RV making unit, created when it purchased the assets of bankrupt motorhome maker Monaco Coach last year, was already operating at a break-even level in what he characterized as the worst of times.

He said it was already a "$400 million, $500 million" a year business for Navistar but he could see it tripling in size as the RV market recovers.

"We believe it will get to be a $1.5 billion business," he said.

Ustian said he did not expect the North American RV business to return to the record sales levels of 2004, when the industry sold more than 70,000 units. But he was also confident that last year's industrywide sales level of just 12,000 was an outlier.

Among the markets in which he sees growth is South America, where commercial buses built on Monaco's one-piece bodies could help Navistar make good on its goal of becoming a player in the global commercial bus market.

And Ustian said he believes there is a growing RV in market in places like China, with its burgeoning middle class and sprawling new highway system.

"They have small RVs there now," he said. "they're pretty sparse. So I think ... there's an opportunity."

(Reporting by James B. Kelleher, editing by Matthew Lewis)