Report on Navistar’s commitment

to environmental, social and economic innovation

Sustainability 2007

Navistar’s Commitment to Sustainable Innovation

C H A I R M A N ’ S L E T T E R

Sustainability means ensuring success in the present without compromising

the future. At Navistar, we partner with our customers and suppliers to pursue

innovations that support sustainability in all its aspects: economic, environmental

and social. Our innovations include:

w Aerodynamic products that save fuel and help truckers make a better living.

w The fi rst no-smoke, no-smell engine technology certifi ed by the U.S. Environmental

Protection Agency as meeting 2007 standards for particulates and hydrocarbons.

w The fi rst commercial diesel hybrid school bus.

w The fi rst commercial diesel hybrid medium duty truck.

w Revolutionary products that protect peacekeepers around the globe.

w Emissions reductions that meet and beat regulatory requirements using

sustainable advances in engine technology, not expensive add-ons.

w Ongoing reductions in our plants’ energy use, waste disposal and

greenhouse gas emissions.

w Remediation of brownfi eld sites and creation of new wildlife habitats.

w Year-over-year improvements in employee health, safety and wellness.

w Technical education that teaches new generations how to improve the world.

This sustainable approach isn’t just smart, it’s good business.

It enables us to create great products that drive the economy while also helping our

environment. It helps us reduce our own costs, making it easier for us to keep on

improving. And it helps us grow profi tably, which means we can provide economic

livelihoods in more communities around the world.

We’re proud of the innovators throughout Navistar who constantly

create better products and fi nd better ways of doing business. We hope you’ll

enjoy learning about their contributions and about our broad commitment to

sustainable innovation.

Sincerely,

Daniel C. Ustian

Chairman, President and CEO

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Hybrid vehicles capture braking energy that would

otherwise be lost. Because stop-and-go driving makes

the most of this opportunity, school buses like the

CE diesel hybrid from IC Bus are an ideal use of this

technology. Each bus can save 800 gallons of diesel

fuel a year.

Believing that good environmental practice is

good business, Navistar is committed to pursuing sustainable

strategies in both our products and the way we operate. Our

sustainable approach to product stewardship builds on sound

science and proven technology to reduce energy usage and

emissions, while addressing the issue of global climate change.

Meanwhile, our facilities undertake improvements that not

only help the environment, but also save money and drive

future enhancements.

P R O D U CT ST E WA R D S H I P P U R S U E S A

S U STA I N A B L E PAT H

Through our advances in diesel trucks, school

buses and engines, Navistar is a leader in improving today’s diesel

technology, which delivers many environmental benefi ts:

w Mileage per gallon of fuel that is 30 to 40 percent better than

gasoline, with equivalent reductions in carbon dioxide (CO2).

w Particulate matter (PM) that has been reduced by more than

99 percent since the advent of regulation.

w Emissions of hydrocarbons (HC) and carbon monoxide (CO) that

have been cut to near-zero levels.

Based on our continued enhancements in sustainable technologies

like exhaust gas recirculation (EGR), we’ve led the industry in reduc-

ing emissions. Navistar developed technology that met 2007 federal

standards for PM and HC six years ahead of government require-

ments. Our 2010 engines will use proven engine and aftertreatment

technologies to meet federal standards for oxides of nitrogen (NOx),

cutting emissions by more than 90 percent.

A E R O DY N A M I C T R U C K D E S I G N

SAV E S E N E R GY

We believe that increasing fuel effi ciency and

reducing emissions from commercial trucks and school buses

results in signifi cant benefi ts for all of us. And we strive to be

the leader in developing energy-effi cient transportation solutions

that maximize diesel’s benefi ts:

w The International® ProStarTM long haul truck, which was launched

in 2007, and the International® LoneStar®, which was introduced

in 2008, feature aerodynamic designs that reduce diesel fuel

consumption and lower emissions of greenhouse gases (GHG).

Good Environmental Practices Sustain Future Improvements

w Tests conducted to the standards of the Society for Automotive

Engineers (SAE) and the Technology & Maintenance Council

have shown that ProStar is more aerodynamic than any other

Class 8 truck being operated in North America, delivering an

annual fuel savings of at least 1,300 gallons of diesel fuel

compared with traditional models.

w In April 2007, ProStar was recognized by the U.S. Environmental

Protection Agency (EPA) as a SmartWay eligible tractor for its

signifi cantly better environmental and fuel consumption performance.

w Meanwhile, our MaxxForceTM 11 and MaxxForceTM 13 big bore

engines set new industry standards for heavy-duty diesel perfor-

mance, with fuel effi ciency that surpasses previous models by

nine to 13 percent.

AWA R D - W I N N I N G H Y B R I D T E C H N O LO GY

C U TS E M I S S I O N S

Navistar is committed to reducing carbon emissions even

further through innovative diesel hybrid technology:

w Our bus subsidiary IC Bus, LLC partnered with Enova

Systems, Inc., to develop the nation’s fi rst hybrid school buses,

which cut emissions by up to 70 percent while improving fuel

effi ciency by up to 70 percent – saving 800 gallons of fuel

per bus per year.

w In 2007, our Workhorse Custom Chassis unit developed and

delivered 25 hybrid commercial truck chassis to customer UPS.

w And in November, Navistar announced that it is the fi rst company

to enter line production of hybrid commercial trucks. The

International® DuraStarTM hybrid, a diesel hybrid electric medium-

duty truck, reduces emissions and provides customers with fuel

savings of 30 to 40 percent over standard diesel technology.

Each DuraStar saves nearly 1,000 gallons of fuel every year.

In recognition of its contributions to the commercial development of

diesel hybrid technology, the company received the 2007 Blue Sky

Award from WestStart-CALSTART, the U.S.’s leading advanced

transportation technology industry organization working to support

and accelerate the growth of companies developing clean and

energy-effi cient transportation technologies.

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non-hazardous waste, avoiding landfi ll disposal costs.

Savings: $537,125.

w Garland’s increased recycling of paper, cardboard, metals and

plastics equated to a greenhouse gas (GHG) reduction of

857 tons.

w An employee team at the Melrose Park, Illinois engine plant

developed a new water-based paint for the engines that reduced

paint use by 82 percent and cut paint sludge by 12.5 percent.

Estimated annual savings: $115,000.

w The Santo Amaro, Brazil engine plant instituted a recycling

program for surplus parts that reduced metal disposal by

330 tons per year. Annual savings: $38,500.

w The Canoas, Brazil engine plant eliminated the use of short-lived

wooden packaging for the shipment of machined parts, replac-

ing it with maintenance-free surplus metal containers. Savings:

$100,000 in avoided costs for a new packaging system, plus

$37,000 per year in reduced purchases of packaging.

w The Jesus Maria, Argentina engine plant developed a centrifu-

gation process that reduced the coolant content in metal chip

waste created by the machining process, enabling the chips to

be recycled and used as a raw material by foundries. Savings:

at least $160,000 per year.

w The Indianapolis engine plant is partnering with a company that

will recycle the plant’s swarf – the fi ne particles resulting from

grinding or honing metal parts – as a pig iron replacement.

Estimated annual savings: $20,000.

w The Chatham, Ontario truck assembly plant has achieved a

98 percent reduction in the odor units emitted by its paint shop,

using thermal oxidation technology to capture and eliminate

volatile organic compounds (VOCs).

R E STO R I N G H A B I TATS

In 2007, Navistar became a member of the Wildlife Habitat Council,

a nonprofi t group consisting of corporations, conservation organiza-

tions and individuals dedicated to restoring and enhancing wildlife

habitat. Our Springfi eld, Ohio assembly operations and our Fort

Wayne, Indiana, truck development and technology center have

established wildlife management teams, comprised of employee

volunteers, who are working to create and restore wildlife projects

on their larger areas of open land. More than 200 acres of land at

the Springfi eld site have already been targeted for a project.

C O M M I T T E D TO R E D U CT I O N S I N

G R E E N H O U S E G A S E S

In our operations, as well as our products, Navistar

demonstrates a commitment to reducing GHGs:

w The company is active in the Business Roundtable’s Climate

RESOLVE program, which focuses on monitoring and reducing

GHG emissions from facilities and products. Navistar is now

measuring current emissions and developing a baseline for

setting aggressive but achievable reduction goals.

w The company also is working with the University of Chicago and

independent research organization Resources for the Future to

study the costs and benefi ts of reducing GHG emissions from

our facilities and products.

w Most of our short-term GHG reduction will come from energy

conservation efforts. Energy use data collected from 2007 will be

used to set goals, including reductions in energy consumption

during both operational and non-operational periods.

R E D U C I N G U S E O F E N E R GY, M AT E R I A LS

Consistent with these goals, Navistar’s facilities

continuously undertake energy effi ciency

enhancements, reduce use of materials, and emphasize

recycling and other sound practices that eliminate environmental

impacts and reduce cost. Here are just some of the company’s

achievements during the past year:

w The Fort Wayne, Indiana, truck development and technology

center replaced an older, ineffi cient control unit driving the

facility’s cold room refrigeration system with a new 260 kW

variable frequency drive and a high-effi ciency electric induction

motor. Estimated annual savings: $13,500.

w The Garland, Texas truck assembly plant installed an automated

air compressor system that lowered working pressure by more

than 20 percent and cut the energy cost of producing

compressed air by 36 percent. Annual savings: $73,532.

w Minimizing its electronic waste stream, the Fort Wayne opera-

tions instituted a program giving 84 used computer monitors to

employees on a fi rst-come, fi rst-served basis. Each employee

signed a waiver pledging to dispose of the unit appropriately at

the end of its useful life. Cost avoidance: $1,050.

w The Garland truck assembly plant recycled 4,297 tons of

In high school, John Capilupo was a long-distance

runner. Today, he’s a daily user of the fi tness center

at the company’s Melrose Park, Illinois engine plant.

Thanks to regular workouts, John has lost weight,

gained improved control over his blood pressure –

and completed two marathons.

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Navistar’s commitment to society embraces the

health, education and well-being of the communities where we do

business. That commitment begins with our employees. In order to

support more than 40,000 retirees who receive health care benefi ts,

Navistar works to achieve maximum health, safety and productivity

among our 17,200 active employees. Navistar’s employee empow-

erment initiative, Vital Lives, provides a comprehensive, multi-

disciplinary and integrated approach to health and productivity

management, including:

1) Primary prevention, which seeks to prevent smoking, obesity or

other risk factors;

2) Secondary prevention, which manages or reduces the risk factors

in order to prevent disease; and

3) Tertiary prevention, which aims to manage disease in order to

prevent catastrophic consequences.

E M P LOY E E S TA K E A DVA N TA G E O F LO CA L

H E A LT H , SA F E T Y P R O G R A M S

Our comprehensive wellness programming is

tailored to local needs by volunteer teams at 30

facilities. It helps employees improve their quality of life through

reducing health and safety risks, promoting evidence-based care

and encouraging smart health care spending:

w Navistar offers each of its employees an annual, confi dential

Health Assessment (HA), which identifi es ways to address be-

haviors that increase the risk of current and potential

health issues.

w Employees use the HA to take control of chronic conditions,

including pulmonary disease, coronary artery disease, asthma,

peptic ulcer disease, heart failure and diabetes.

w Incentive-based programs include Spring Tune-Up, a six-week

nutrition program, and Trucking Across North America (TANA), a

13-week competition that uses a pedometer to log employees’

weekly exercise miles.

w Our Truck, Engine and Parts groups have initiated programs

aimed at improving our already strong workplace safety culture.

The Truck Group has partnered with DuPont Safety Resources to

drive safety into our plants as a key value and improve operating

Social Benefi ts Encompass Health, Wellness and Education

discipline. Using this approach, the group has reduced OSHA

recordable cases in six plants from approximately 600 in 2006 to

350 in 2007, and has established an aggressive target of 150

for 2008.

w Individual plants have recently achieved major safety milestones,

with our Garland, Texas truck plant reaching one million hours

without a lost-time case, and our Huntsville, Alabama plant

reaching 1.5 million hours.

Helping employees maintain a healthy lifestyle minimizes absentee-

ism, improves productivity, and keeps health care costs manageable

for the company and employees alike:

w Navistar’s combined worker’s compensation and disability costs

decreased for the sixth straight year.

w The company has successfully kept health care costs fl at during

the past four years.

w Navistar also has minimized cost shifting to employees at a time

when growth in U.S. health care costs has outpaced infl ation.

A D D I N G TO T H E W O R L D ’ S K N O W L E D G E

O N W O R K P L A C E H E A LT H

Navistar also actively contributes to global

knowledge on workplace health issues by

supporting health research initiatives that are based on careful

analysis of company medical claims data. The company’s vice

president for Health, Safety, Security and Productivity, Dr. Bill Bunn,

serves on advisory committees for the National Academies of

Sciences, the Board of Scientifi c Counselors of the National

Institute for Occupational Safety and Health (NIOSH) and other

groups, and, since 2006, has served as editor-in-chief of the

Journal of Health and Productivity Management.

The company serves as international chair for the Multinational

Collaboration, which meets at the White House on a twice-yearly

basis, and our programs have been recognized by the International

Society for Travel Medicine.

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GLOBAL TOOLS FOR SAFETY AND SECUR ITY

Thanks to the growth of our global business and

the growing numbers of company expatriates in countries such as

Afghanistan, Navistar is focused on combating the global threats

represented by terrorism, potential pandemics and other risks. Our

command center is capable of tracking security issues systemwide.

Our automated traveler monitoring system keeps travelers informed

about any in-country security, political, and medical risks, and

provides a historical trace in the event of an emergency or eventual-

ity such as a natural disaster or terrorist event. Since the system’s

inception, the company has experienced no accidents, losses, or

other signifi cant incidents.

T E C H N I CA L E D U CAT I O N B U I L D S

P R O M I S I N G CA R E E R S

In addition to supporting many good causes that help those in need,

Navistar and its employees place a special emphasis on education.

Company technical and environmental education programs address

the needs of students in underserved public school systems, while

mentorship from industry leaders gives students a head start toward

a meaningful, stable career path:

w Navistar’s collaboration with Chicago Vocational Career Acad-

emy (CVCA), a high school on Chicago’s South Side, marked

its seventh anniversary in 2007. The three-year curriculum co-

developed by Navistar, which has been certifi ed by the National

Automotive Technicians Education Foundation (NATEF), has

trained hundreds of inner-city youths as qualifi ed diesel truck and

engine technicians, with up to 80 percent of graduating students

landing jobs.

w In 2007, Navistar worked in partnership with the Indianapolis

Public Schools (IPS) to establish a three-year diesel technician

program at the Career & Technology Center at Arsenal Technical

High School, the fi rst of its kind in the state of Indiana. Navistar

and IPS are moving ahead to seek NATEF certifi cation of this

program.

w Navistar’s support for the Society of Automotive Engineers’

“World in Motion” program provides middle school students with

much-needed programs in math and science.

Social Benefi ts

w Since 1995, MWM International Motores in South America has

engaged with the community through a number of programs and

relationships. The award-winning Formare School program, which

operates in Brazil and Argentina, introduces disadvantaged

16- to 18-year-olds to manufacturing, engineering and

administrative careers.

w MWM also has spearheaded an award-winning social program,

Projeto Crescer (“Project Grow Up”), which has provided on-the-

job training for more than 200 underprivileged teenagers in Santo

Amaro and Canoas, Brazil. After a year-long training program,

qualifi ed interns are hired or given recommendations to other

appropriate employers, and Navistar continues to work with them

for up to a year after they leave the internship.

S C H O O L P R O G R A M S F O ST E R SA F E T Y,

E N V I R O N M E N TA L AWA R E N E S S

w IC Bus has teamed with the nation’s top industry organizations to

develop a comprehensive bus safety program, aimed at students,

parents and school offi cials, called “Be Cool. Bus Rules!TM”

w The Chatham-Kent Children’s Safety Village near our Chatham,

Ontario truck assembly plant educates thousands of children on

safety matters.

w Our Canoas, Brazil engine plant has developed an environmental

awareness program, Mutirão Ambiental, which includes children

from the Formare School.

w Meanwhile, our engine plant in Jesús María, Argentina donates

supplies and instructional support for environmental education

programs at the Francisco Ortiz de Ocampo of Jesús María

elementary school.

A R E C O G N I Z E D L E A D E R I N D I V E R S I T Y

Diversity, one of our key strategies for growth, brings Navistar a

number of tangible benefi ts, including innovation, high-quality

products and services, and improved customer relationships.

The company has been recognized by DiversityInc magazine as a

leader in both employee and supplier diversity, and has also been

ranked one of the 50 best companies for minority engineers.

7

Students at the Chicago Vocational Career Academy learn about diesel technology from a curriculum

developed by Navistar. Using four state-of-the-art

laboratories, they work on I-6 and V-8 diesel engines,

overhaul transmissions and differentials, and fi x trucks’

heating, ventilation and air conditioning systems.

8

Navistar’s manufacturing roots in Springfi eld, Ohio

date back to the mid-1800s. Today, more than fi ve

million trucks later, the Springfi eld Operations uses

advanced manufacturing technology to assemble

International® DuraStarTM and DuraStar hybrid trucks.

As a maker of trucks, school buses and engines that transport goods

and people, Navistar has a central role in driving economic benefi ts for our

customers, as well as our shareholders. Our continued growth and profi tability is also

vitally important to our 17,200 employees and 40,000 retirees. For more information on

our company’s fi nancial performance and governance standards, please visit the Navistar

Investor Relations Web site at http://ir.navistar.com/.

We also play a major role in the economies of our plant communities. In addition to

building new plants and other facilities in the U.S. and elsewhere, we have continued to utilize

our established plants for continued long-term work. For example, our truck assembly plant

in Chatham, Ontario has been selected to build our new premium Class 8 long haul product,

the International® LoneStar®. Our economic impact also extends to our supplier base. We are

committed to sourcing $1 billion from minority- and women-owned suppliers by 2009.

I N V E ST M E N TS I N C O M M U N I T Y D E V E LO P M E N T

We provide extensive education, health and safety benefi ts to local

communities through our philanthropic and volunteer activities (see the Society section of

this report). We also support brownfi eld remediation and development activities that add value

to local economies:

w Navistar invested more than $2.7 million in remediation of a site near our Springfi eld,

Ohio plant, and then, for a minimal sum, transferred the property to the City of Springfi eld

for redevelopment.

w Ongoing remediation of the former Wisconsin Steel Works site in southeastern Chicago,

once owned by Navistar, earned the “Good Neighbor Award” of the Southeast Environmen-

tal Task Force, an environmental advocacy group. Three cleaned-up parcels from the site

have already been sold for industrial reuse.

w Navistar is also managing the cleanup of a site in San Diego, California that the company

owned for 20 years before selling it in 1981 to Solar Turbines, a wholly owned subsidiary

of Caterpillar.

Navistar’s commitment to the communities in which we operate and where our employees and

their families live is aimed at sustainable growth, jobs, education and development.

How Navistar Adds Sustained Economic Value

Tim McDaniel, environmental, health and

safety manager, is one of the employee

volunteers who is helping to restore

wildlife habitats at Navistar facilities.

4201 Winfi eld Road

Warrenville, IL 60555

www.navistar.com

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