With demand for heavy-duty trucks expected to rise sharply through 2012, Navistar International Corp. (NAV) is coming under increasing pressure to resume production at an idled Canadian assembly plant.

The maker of trucks and engines said no decision has yet been made on whether to reopen the Chatham, Ont., plant, which has been idle since June 2009. Navistar executives earlier this year said they expected to make a decision on Chatham this summer. In the meantime, Navistar continues to rely on plants in Texas, Mexico and Ohio to produce heavy-duty trucks.

But industry analysts warned that the Illinois company is likely to face a shortage of production capacity by early next year as truck orders rise to the highest level since 2006.

Next year "is going to be an extraordinarily good year for the industry," said John Stark, an independent truck-market forecaster in Chicago. "Navistar needs more capacity. It does have options. But the most obvious one is reactivating Chatham. It's the easiest way to resolve their capacity problem."

Navistar said the company has sufficient production capacity after all its active assembly plants were outfitted in recent years to build both medium- and heavy-duty truck models.

"We do not have a capacity problem," Karen Denning, communications director, said Friday. "With all the actions that we've taken with our flexible manufacturing strategy, we're in a great position to go up or down in the [production] cycle."

Chatham had been Navistar's primary plant for heavy-duty trucks. But in the midst of a severe decline in truck sales, the company ceased production in Chatham and shifted all heavy-duty truck assembly to Garland, Texas, and Escobedo, Mexico. Navistar's decision to idle Chatham attracted widespread criticism in Canada where federal and provincial governments provided money in 2003 to modernize the Chatham plant and train its workers.

The shutdown coincided with the expiration of Navistar's contract with the Canadian Auto Workers union. Any move to reactivate the plant would have to be accompanied by a new contract with the union. A CAW representative said Navistar has given no indication that it is ready to initiate talks with the union to reopen the plant, which had turned out more than 100 trucks a day and employed 1,100 workers at peak production rates.

"They're noncommittal at this point," said Bob Chernecki, an aide to CAW President Ken Lewenza. "They're saying there's no need for more capacity and, when they need it, they'll make a decision."

The need for additional capacity is expected to arrive by the end of this year. Production of heavy-duty commercial trucks in North America is expected to increase by about 30% next year over 2011 to about 330,000 vehicles, according to market forecaster ACT Research Co. That would be more than double 2010's volume of 154,200 trucks.

Analysts said Navistar and rival truck builders Paccar Inc. (PCAR) and Daimler AG's (DAI.XE, DDAIY) Freightliner commercial-truck unit are already experiencing periodic shortages of parts and components as their suppliers struggle to increase output. Forecaster Stark predicted that Navistar will be one of the first truck builders to see a capacity crunch in its own assembly plants.

Navistar recently started building construction-related trucks in Garland under a joint venture with construction machinery maker Caterpillar Inc. (CAT). Stark said the production increase for the Caterpillar trucks competes for assembly-line space with Navistar's International-brand trucks. Navistar also builds military trucks in Garland.

Last year, Navistar added heavy-duty truck production to its Springfield, Ohio, plant, which had been limited to medium-duty trucks. The company agreed to send more work to Springfield after receiving concessions on work rules and staffing from the United Auto Workers Union. The company has said it would want the same degree of flexibility from Canadian workers as a condition for restarting the Chatham plant.

http://online.wsj.com/article/BT-CO-20110715-713460.html