Ford Sues Navistar Over Engine Prices, Warranty Dispute

[Max Power]

http://money.cnn.com/news/newsfeeds/articles/djf500/200701121301DOWJONESDJONLINE000787_FORTUNE5.htm

DETROIT -(Dow Jones)- Ford Motor Co. (F) has filed suit against U.S. diesel engine supplier Navistar International Corp. (NAV) regarding pricing and a contract dispute, a move that could trigger hiccups for the supply of high- profit Super Duty pickup trucks down the road.
Ford filed the lawsuit in a Michigan court against Navistar on Thursday, accusing the engine supplier of not complying with a warranty cost-sharing agreement and "unjustifiably" raising prices on a diesel engine used in the F- series pickup truck line.
The lawsuit states that Navistar has threatened to cut off shipments if Ford does not pay a price Navistar is demanding, a move Ford says would breach a contract. Also, Ford accuses Navistar of not complying with warranty-contract obligations related to the cost of fixing quality glitches that consumers encounter.
Ford started debiting Navistar's invoices to recover what it feels the supplier owes related to warranties, according to the lawsuit.
The lawsuit comes at a vulnerable point for Ford and Navistar, which are counting on a successful partnership to make money in a tough U.S. market where high costs and falling domestic-vehicle market share have forced job cuts at both companies.
Though Ford's actions could hurt the auto maker and the supplier, Ford is banking on the success of large pickups - many of which use Navistar engines - to help the auto maker regain profitability. Because engines are such high-cost components, it is seen as essential for Ford to pay competitive prices for the part.
Both Ford and Navistar confirmed the lawsuit, which was reported Friday by the Chicago Tribune, though Navistar spokesman Roy Wiley said the company had not yet been officially served.
"This is totally without merit and we are going to vigorously respond in court," Wiley said.
Ford is in the midst of launching its critical F-Series Super Duty vehicles in the U.S. The truck has traditionally represented more than 300,000 vehicles worth of annual volume, and 70% of Super Duty trucks carry diesel engines. The vehicle was redesigned for 2007, but its sales launch was delayed by nearly six months due to problems in diesel engine development - the launch is now planned early this year.
Ford and Navistar have a long-time partnership related to the development and supply of diesel engines, but various quality issues and a delay on the development of a recent product have shaken the relationship somewhat.
Diesels have gradually become more expensive and complicated to produce in the U.S. due to a toughening of federal emissions standards.
Impact For Both Sides
A protracted legal fight could hurt both Ford and its supplier. Navistar has shipped 25,000 Super Duty engines to Ford, but the supply would run out in a matter of months, leaving Ford in a tough bind. The auto maker can charge a premium for trucks that have big diesel engines, which are seen as essential components in heavier-duty trucks.
Meanwhile, 75% of the engines Navistar makes are sold to Ford, according to Bear Stearns analyst Peter Nesvold. "Accordingly, the suit could have a meaningful impact if the situation deteriorates further," Nesvold said in a research note Friday.
But between Navistar's exposure, and the fact Ford's Super Duty pickups primarily use Navistar engines, "neither company can afford a protracted supply disruption," Nesvold said. "As a result, we don't expect a material impact near term, but will be monitoring the situation closely."
A Ford spokeswoman said the auto maker felt it had no choice but to file the lawsuit, but said the action won't affect the critical first-quarter launch of the redesigned Super Duty trucks. "We have sufficient inventory of engines on hand," spokeswoman Kristen Kinley said.
She added that Ford still hopes for an amicable agreement, though she said the auto maker "will take steps to avoid any interruptions in production."
The new dispute comes as General Motors Corp. (GM) prepares to launch all-new heavy-duty pickups later in 2007.
Ford's Kentucky Truck Plant, which produces the Super Duty lineup, recently gave Navistar an award related to quality improvements, Navistar's Wiley said. He said the Navistar engines, which are branded "Power Stroke" products, have a big following in the U.S.
- By John D. Stoll and Terry Kosdrosky, Dow Jones Newswires; 313-226-1249; [email protected]

 

[powerboatr]

thanks
i have been reading this all over the net today...
then my trailer life showed up with a road test of the 450 OH BABY
she sounded SWEEEEEET

 

[powerstrokeguy]

i hope this doesnt cause ford to lose the powerstroke, that would be very crappy! lets hope they can resolve this and keep the powerstroke that we all love. i will be sad if ford loses it.

 

[02SilverStroke]

i hope this doesnt cause ford to lose the powerstroke, that would be very crappy! lets hope they can resolve this and keep the powerstroke that we all love. i will be sad if ford loses it.

Hopefully they can work it out. The engine is a "money maker" for both companies, and neither one can afford to lose.

 

[powerstrokeguy]

thats for damn sure! i have high hopes they will work it out. cuz i really want to see more of that 6.4l

 

[DragonSlayer]

reading some of my mags, Ford might be dropping PowerStroke and IHC in favor of CAT, but CAT would have to develop a new motor since the C-7 is going away, and i don't think they got motors any smaller that is capable of the HP#'s that Ford is useing now, and then there is emissions

 

[Deviant Diesel]

From what I have been told by my CAT salesman, CAT has already developed a new motor for light duty truck use, and they went to Ford w/ it 1st but have also been talking to Toyota. I'd buy a CAT powered Super Duty in a heartbeat. It's hard to beat their R&D, service, and by far their quality.

 

[Scot]

Sure would blow if their relationship fell apart and we had to buy Toyotas to get our motor

 

[Crumm]

I'd buy a CAT powered Super Duty in a heartbeat. It's hard to beat their R&D, service, and by far their quality.

Have you checked into the quality of Cat's in the last year or so? They use to be the best but here lately with the new emission standards they are falling way behind. The company I work for has six new 06' Cat's and our sister company that does our service work has about 20 new 06' Cat's and I would not give you a nickel for the fleet. There is not a week goes by where two or three of them are getting towed home. The main problem is broken rockers but there are some other problems too. There is also a problem with the bolts that hold the turbo on breaking. The 07' models are going to be even worse, there is so much emission crap on the side of the new 07' Cat's that the truck manufactures will probably need to build a wider hood. Late last summer the company purchased two trucks with Cummins ISX engines and so far they are really making all the Cat's look bad. A few years ago you could not have given me a ISX but the new ones are great. I would not ever purchase a Dodge to get a Cummins but I know I would think twice about purchasing a Ford with a Cat unless Cat straightens up there act. The new Cat's wont even hardly run on #1 fuel, they fall on there face. The ISX runs great no matter what you put in the tank. Hopefully Ford and Navistar will kiss and make up

 

[NASCAR Mike]

Ford owns a controlling interest in Cummings. 07 will be the last year for Cummings in the Dodge line. 08 Dodges will use Mercedes diesel engines.

Forget CAT, I would buy a F350 with a Cummings engine!