Navistar stops Ford work Diesel production halted over dispute
By Jim Mateja, Tribune auto reporter. Tribune news services contributed to this report Published February 27, 2007
Navistar International Corp. has halted the production and shipment of diesel engines offered in about 70 percent of Ford Motor Co.'s heavy- duty trucks, which account for 40 percent of the automaker's full-size pickup sales annually.
In suspending production, Navistar, which was sued by Ford in January for allegedly failing to live up its contract, said Monday that it hasn't been paid for the engines since the suit was filed.
Ford's suit, filed in a Michigan court, accuses the Warrenville-based engine supplier of not complying with a warranty cost-sharing agreement and "unjustifiably" raising prices on its diesel engine used in the F-Series line, the top-selling vehicle in North America for 25 years.
The clash threatens production of Ford's Super Duty pickups. After losing a record $12.7 billion last year, Ford is counting on the redesigned 2008 Super Duty line to help return it to profitability.
Ford spokeswoman Becky Sanch said the automaker has enough engines to continue building the trucks "near term," without specifying how long that would be.
But Bear Stearns analyst Peter Nesvold said in a research note that Ford and Navistar would feel the effect within 30 days. Ford buys 75 percent of Navistar's production of the 6.4-liter, Power Stroke diesel.
"Ford and Navistar are tied at the hip for diesel engines for the F-250 and F-350," Nesvold said in the note. "While we don't currently expect an extended outage, 30-plus days would be material to both Navistar and Ford."
Navistar builds the engines in Huntsville, Ala., and Indianapolis, and Navistar said it would idle the latter plant. The Huntsville plant has other customers, while Indianapolis builds only for Ford, Navistar spokesman Roy Wiley said.
The Indianapolis plant has 700 workers, and a nearby foundry has 500. Wiley said he did not know how long the shutdown would last.
He said Navistar stopped production after making its daily shipment of
400 engines last Thursday. "They haven't been paying us since they filed suit in January," he said of Ford. "We said the suit was without merit and we would respond to it in court, and we expect to by the end of this month."Navistar has provided Ford with a 6-liter diesel engine for several years, Ford's lawsuit notes, and in late 2006 began supplying it with a new 6.4-liter engine.
In the suit, Ford said the parties have previously been able to negotiate and reach agreement on the prices of the engines, but Navistar began raising prices for the engines "without adequate explanation or support for its actions."
"Ford doesn't believe it has to pay for changes to the engine that had to be made to comply with new federal emission requirements for 2007 which required a lot of work and expense, and everyone who makes diesel engines charges more," said Wiley.
Ford said it has raised the retail price of the diesel by $1,500 to cover the cost of meeting new federal emissions regulations, but Sanch said Ford had no further comment on what it pays because it considers that one of the details of the suit that is private until aired in court.
Navistar is the sole supplier of the diesels, called Power Strokes, and has provided Ford with engines since 1979.
Ford sold 796,039 F-Series trucks in the U.S. last year, down 12 percent from 2005.
In addition, Ford says Navistar is not complying with its warranty- sharing obligations. Under the agreement, Navistar is supposed to pay a portion of the costs Ford runs into for engine-related warranty repairs. But Navistar has refused to pay the amounts Ford says it is owed, according to the lawsuit.
In response, Ford took the unusual step of withholding money it owes Navistar for a portion of those costs. That withholding is why Navistar stopped building the engines, Wiley said.
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