Ford suing supplier Navistar over engine agreement

CHICAGO — Auto giant Ford claims its Navistar International is in breach of contract and is suing its longtime diesel engine supplier in Michigan court, the Chicago Tribune reports today.

According to the newspaper, Ford and Navistar, which also makes International brand medium and heavy-duty trucks, have locked horns over the price Navistar is charging Ford and the extent of Navistar’s financial obligations in warranty claims.

Navistar denies it’s refusing to live up to the decade-old supply accord. Ford’s claims are “totally without merit,” and the company “intends to vigorously respond in court,” a Navistar spokesman told the Tribune.

Ford took the unusual step of “debiting” Navistar for a portion of those costs. In other words, Ford is withholding money it owes Navistar for engines, in order to recover funds Ford says Navistar owes it under the warranty agreement.

Navistar has been providing Ford with a 6-liter diesel engine for several years, Ford’s lawsuit notes, and in late 2006 it also began supplying the automaker with a new 6.4-liter engine.

According to the suit, Navistar allegedly raised the price of that engine and
“failed to act in good faith.”

Ford’s lawsuit goes on to say Navistar threatened to halt shipment of the engines if the automaker doesn’t pay the price Navistar is demanding, which Ford claims, is in breach the supply agreement.

The court battle has the potential to sour future business relations between the two vehicle makers. Ford and Navistar also have a joint venture that manufactures medium-duty Blue Diamond trucks for Ford in North America.

Commenting on the situation, transportation market analysts Bear Stearns in New York says the situation should be closely monitor since the exposure each company has to one another is significant. Navistar sells about 75 percent of its engines to Ford; while more than 70 percent of Super-Duty pick-ups Ford sells have a Navistar engine.

Still, the firm is optimistic. “We believe that mutual fear brings peace — neither company can afford a protracted supply disruption,” Bear Stearns stated in a communiqué to investors.

— with files from the Chicago Tribune