Truck maker Navistar International Inc. says it is exploring a joint venture with a Chinese vehicle manufacturer to build diesel engines for commercial vehicles in China.
Navistar said today (Oct. 30) the proposed 50-50 joint venture with Anhui Jianghuai Automobile Co. would establish a research and design center in China’s Anhui province, according to Associated Press.
Diesel engines produced under the joint venture would be used primarily in China as well as certain export markets.
Navistar says the joint venture would be governed by an eight-person board consisting of four members from each company.
The venture still requires approval by each company’s board of directors, as well as other approvals before it moves forward.
Despite a bankruptcy court judge’s ruling late Friday (May 22) approving the sale of Monaco Coach Corp. to a unit of Navistar International Inc., it remains unclear whether Navistar will resume production at any of the plants in Oregon or Indiana or rehire any of the 2,000 employees laid off just before the company filed bankruptcy.
U.S. Bankruptcy Judge Kevin Carey approved the $50 million sale after learning there were no other bidders for the assets of the RV manufacturing company, which has major manufacturing plants in Coburg, Ore., and northern Indiana, according to The Register-Guard, Eugene, Ore.
“We don’t have any answers either – no tangible answers,” said Mike Johnson, a middle manager at Monaco’s Coburg plant until he was laid off in March. “It’s just a big question mark.”
During Friday’s court hearing, Monaco attorney Malhar Pagay told the judge an “ancillary benefit” of the sale could be some rehiring.
“(Monaco’s) former employees may be called upon by Navistar to restart some of the plants that were shuttered,” Pangay said. “I also note that the debtor’s former dealers will enjoy a revitalization of the Monaco brand, and depending upon Navistar’s determination, may have a relationship with Navistar.”
The sale is scheduled to close June 2.
Roy Wiley, spokesman for the $14 billion truck and engine builder, declined comment on the fate of the Coburg plant. Navistar has 17,000 employees at plants in Ohio, Alabama, Arkansas, Oklahoma and Canada.
“It’s not done until it’s done. It’s a step in the process,” Wiley said. “Ask me after June 2, and I’ll probably be able to tell you more.”
Options for Navistar might include restarting some of the factory production now, keeping everything idle until the economy improves substantially, or shifting Monaco production to some of Navistar’s existing facilities.
Navistar’s $52 million purchase price would not be enough to repay Monaco’s secured creditors, including the $38.2 million owed to lender Bank of America and $37.4 million claimed by lender Ableco.
The sale dims the chances that unsecured creditors will recover any of the money Monaco owed to them.
Unsecured creditors – those who have no legal hold on a company’s physical assets – typically are paid only after secured creditors have been satisfied.
The sale might eventually benefit local suppliers, though, if Navistar restarts RV production.
Because Friday’s ruling carried no definitive answers about whether the Coburg plant would reopen, workers and community members reacted to the news with muted optimism.
“We look at all of this as potentially good news. That’s how I view it,” said Coburg Mayor Judy Volta.
Kevin Penn, a former team leader at Monaco, has been working part time in landscaping and has signed up for some summer classes, but he said he’d be ready to go back to the plant.
“It would be really good if they could get the company going again. I’ve seen a lot of people from the company who still don’t have jobs,” he said.
Former Monaco supervisor Sandy Kadash has been looking for work.
“Nothing has come up so far,” she said. “We made a pretty good living there and it’s kind of hard to think about taking a step backwards.”
Kadash said she keeps in contact with Monaco’s human resources department.
“It sounds like they’re getting stuff ready, but I’m not sure anybody knows for sure what that means yet,” she said. “From everything that I’ve been told, it’s a good thing.”
During the bankruptcy proceedings, Monaco has kept an administrative and sales staff at the headquarters.
It would be nice, Kadash said, if the sale meant the end of limbo for Monaco employees, who were put on unpaid leave for months before their official layoff.
Kevin Gallagher, who fabricated doors for the motorhomes, said he doubts Navistar would hire anything close to the whole Monaco crew back.
“I still think the market is terrible for motorcoaches,” he said. The market won’t rebound until the national housing crisis has passed and RV buyers can again tap into their home equity for cash. “I’m not going to get overly whoop-de-do about it,” he said.
The Oregon Office of Economic Analysis predicts employment will decline an average of 5.3% this year and drop 0.7% in 2010, according to The Register-Guard, Eugene.
It isn’t until the first quarter of 2011 that Oregon’s economy will see job growth of more than 2%, according to the forecast.
State forecasters predict that the struggling transportation equipment industry, which includes manufacturers of trucks, boats, railcars and RVs, will take the biggest hit to employment this year. The state predicts job losses of 28% this year, then 5% next year before growth of 3.4% returns in 2011.
Lane County had built itself into a center for RV production, but its two dominant manufacturers of luxury motorhomes, Country Coach LLC of Junction City and Monaco Coach Corp. of Coburg, sought bankruptcy protection earlier this year. Country Coach is operating with just 94 employees, down from a peak of about 1,800 workers in 2006, and Monaco terminated all of its 2,000 employees when it filed for Chapter 11 bankruptcy protection in early March.
(Monaco was due back in a Delaware bankruptcy court today for the auction of its recreational vehicle division. Navistar International Inc. has offered $52 million for the business but company officials continue to decline to talk about why it has bid for the division and what its plans are. The court is scheduled to authorize the sale on Friday and complete the transaction on June 2.)
Other RV manufacturers nationwide are struggling. All manufacturers combined are forecast to ship 7,000 to 8,000 Class A motorhomes this year, said Frank Magdlen, an RV analyst with the Robins Group in Portland. Not long ago, Monaco alone shipped that many coaches in a year, he said.
“That’s how precipitous the drop was,” Magdlen said. He predicts that Lane County’s RV manufacturers will bottom out this year and begin a slow road to recovery in 2010 and 2011.
The industry’s return is predicated on consumer demand, he said. Consumers have to feel secure enough about their job prospects and finances to make the investment. Plus, financing has to be available.
RV financing should be stronger toward the second half of this year and back to more normal activity in 2010, Magdlen predicted.
Even though Monaco Coach Corp. has struck a deal to sell its major assets to a subsidiary of Navistar International for $52 million, the Coburg, Ore.-based RV maker is racing to close the deal before it runs out of money and creditors run out of patience, according to The Register-Guard, Eugene, Ore.
At a hearing Friday (April 24) in U.S. Bankruptcy Court in Delaware, an attorney for Monaco said the company had signed an asset purchase agreement with Workhorse International Holding Co., a Navistar subsidiary. The company’s main secured lenders – Bank of America and Ableco – have agreed to provide it with at least one more week of operating cash while Monaco officials try to “get them comfortable” with what they would be paid in the sale, said Robert Orgel, one of Monaco’s bankruptcy attorneys.
“How much they are to be paid is the key issue,” Orgel said. “The amount it takes to satisfy them may well be harder to achieve the longer it takes us to close a sale because we are incurring expenses every day and the ability to sell assets is limited.”
When it filed for Chapter 11 bankruptcy on March 5, Monaco owed Bank of America $38 million and Ableco $37 million. In a Chapter 11 case, a financially stressed company is given protection from creditors while it reorganizes its finances.
Orgel asked Judge Kevin Carey for an expedited schedule so the company could be put up for auction and the deal could be consummated by June 1. If the sale doesn’t close by then, creditors could move to liquidate Monaco.
But an attorney for the committee for unsecured creditors, Donald Detweiler, told the judge that the sale appears to benefit only the two lenders. Liquidation of Monaco’s assets or some other alternative may provide a better return to unsecured creditors, he said.
“There may be a better way to see value than what’s being proposed here,” he said.
Carey said he expects any reorganization plan to provide some value for unsecured creditors.
“The court can’t create value when value isn’t there, but I want a fair shot at unsecured creditors getting there,” he said.
Unsecured creditors are those that don’t have any legal claim on a company’s land, buildings or equipment. They get paid only after creditors with secured positions, often banks, get paid. If they get paid, unsecured creditors are likely to get something less than the total amount they’re owed. The company has thousands of unsecured creditors.
In a court filing, Monaco attorneys argued that an asset sale to a buyer that would operate the RV maker as a going business would provide the most benefit to everyone concerned. Doing so would “create direct value for creditors, saving 2,000 or more jobs in communities in Oregon and Indiana … and creating ongoing value and revenue for a large number of (Monaco) vendors, dealers and other creditors.”
It’s not clear from the company’s court filings how many people would be employed in Coburg and Indiana if the factory were to resume production.
Navistar, a massive Illinois corporation that builds diesel engines, school buses, heavy trucks and military vehicles, announced a month ago that it had signed a nonbinding letter of intent to buy Monaco’s core assets for up to $50 million. On Wednesday (April 22), Monaco signed an asset purchase agreement with Workhorse, a Navistar subsidiary serving as a “stalking horse” purchaser. In bankruptcy cases, a stalking horse bid sets a threshold price so that other potential bidders can’t low-ball the purchase price.
Judge Carey will conduct another hearing this week on bid procedures and other issues, including whether the secured creditors are willing to extend additional operating credit to Monaco while the sale moves forward. A sales auction would be conducted in mid-May, followed by another hearing May 22 at which Monaco would be seeking court approval for a sale and creditors could seek to block it.
Under the terms of the deal, Navistar would obtain certain manufacturing facilities located in Indiana and Oregon. In addition, Navistar will acquire all brands, intellectual property, inventories and equipment relating to Monaco’s motorized and towable recreational vehicle segments.
The deal would not include Monaco’s resort properties, which the company is attempting to auction separately. Nor would it include its Roadmaster Cargo Trailer business and several industrial properties.
“We are excited to move forward with the tremendous resources of Navistar supporting our great products,” Monaco CEO Kay Toolson said. “Everyone at the company is ready and committed to again build the highest quality RVs in the industry, offer the best customer support and bring jobs back into the communities in which we operate. We appreciate the patience of our employees, dealers, suppliers and RV owners as we navigated through this challenging environment.”
The company said it appears that no proceeds from the sale would be available for distribution to shareholders.