Navistar International Corp. is going to war.

Bob Tita | | Crain's Chicago Business - - Three years after entering the military truck business for the first time since World War II, the company has orders for 12,000 trucks worth about $1.5 billion over the next four years. And the company could add that much in annual revenue if it wins a lucrative contract to build a replacement for the military's ubiquitous Humvee.

On Nov. 9, Navistar will deliver a model truck to the U.S. Army that it hopes will be incorporated into the Army's final design for a new truck. Defense contracting giant Lockheed Martin Corp. will be submitting a model as well. And lots of formidable defense contractors are expected to vie for the job of building the truck once the Pentagon issues a design.

Navistar hopes its truck-making know-how will overcome its lack of Pentagon experience to make it the exclusive supplier for a vehicle whose production would be a guaranteed source of revenue for years to come.

"This is potentially a huge opportunity for Navistar," says Loren Thompson, chief operating officer of Lexington Institute, a defense industry think tank in Arlington, Va. "If Navistar is the (contractor) on a program like this, it would probably go on for decades."

It's not clear exactly how much the Humvee-replacement contract will pay — the Pentagon doesn't disclose figures and doesn't have a specific appropriation for trucks — but whoever wins the contract will make an estimated 10,000 trucks a year, for all military branches, at a price of about $165,000 each.

That works out to $1.65 billion annually, a nice boost for a company with an estimated $11.5 billion in revenues last year.

The military truck effort is a key element of CEO Daniel Ustian's plan to expand beyond commercial trucks and to reach $15 billion in sales by 2009.

And Navistar could make the trucks without adding significant manufacturing capacity, by using existing truck-making platforms and factories.

South Bend, Ind.-based AM General LLC, the maker of Humvees, has built an estimated 200,000 of them over the past 21 years. But the Humvee has fallen out of favor as a combat vehicle with military officials, partly because AM General hasn't been able to produce an engine powerful enough to keep up with the increased armor plating needed to protect U.S. troops in war zones like Iraq and Afghanistan.

COMPETITORS READY FOR FIGHT

Navistar, which primarily makes trucks for freight haulers, won't have any trouble making big enough engines. But defense industry experts say snagging the contract won't be easy. Aerospace contractor Lockheed Martin, which doesn't make trucks itself, says it can pair its expertise in military engineering with a company that can make trucks.

And AM General hasn't given up; it vows to be active in influencing the design and production of the new vehicle. "We intend to make light tactical vehicles for the Army for a long time," a spokesman says.

Pursuing a high-profile defense contract often requires legions of bureaucrats to generate volumes of information for the bid process and teams of lobbyists to marshal congressional support.

"It's a high-cost business," says Dennis Huibregtse, an analyst with Power Systems Research, a Minnesota-based truck manufacturing consultancy. "Your bid costs are a fortune because of the documentation requirements."

Navistar executives hope their work on the new truck's design and intimate knowledge of its costs will help offset the company's lack of experience with procuring large-scale military contracts. In just three years, they say, they've won 20 of 25 military truck contracts they bid on, thanks to their ability to quickly devise military versions of the engines and vehicles already in production for commercial trucks. This makes the vehicles less expensive to manufacture and ensures a readily available supply of replacement parts — both strong selling points for the Pentagon.

"What we basically do is leverage off the product offerings we have today for the commercial world," says Archie Massicotte, president of Navistar's military subsidiary, International Military & Government LLC. "This is what the Army is looking for."