Ford-Navistar corporate feud revs up with engine lawsuit - Chicago Tribune
Ford-Navistar corporate feud revs up with engine lawsuit
June 07, 2007|By James P. Miller, Tribune staff reporter
Navistar International Corp. has raised the stakes in its risky feud with Ford Motor Co. by filing a lawsuit alleging the automaker, a major buyer of Navistar diesel engines, is planning on making a diesel engine on its own with a design Navistar engineers created at Ford's request.
"Rather than honor its promises and contracts," the Warrenville-based truck and engine-maker contends in a complaint filed this week in Cook County Circuit Court, "Ford intends to use the [Navistar] International design and manufacture diesel engines itself, without compensation to International." International Truck and Engine is Navistar's operating subsidiary.
The new breach-of-contract suit, which asks the court to order Ford to pay damages of "at least hundreds of millions of dollars," adds one more twist to the surprisingly nasty spate of litigation that has broken out between the two companies.
For decades, Navistar has been the sole supplier of the hefty diesel engines Ford puts into its heavy-duty pickups. But, over the past several months, the relationship between the supplier and its crucial customer has soured.
Navistar asserts that Ford, which is under extreme financial distress, has begun to improperly squeeze suppliers such as Navistar, violating long-standing contracts.
Ford has consistently denied any wrongdoing and did so again Wednesday. Navistar's lawsuit is "without merit," Ford spokeswoman Kristen Kinley told Bloomberg News.
Ford, in fact, contends that it is the injured party.
The fight between the two companies became public in January, when the automaker not only began to withhold payments for the new-generation 6.4-liter engines Navistar was delivering but filed suit against the enginemaker in Michigan state court, alleging Navistar was overcharging for its engines.
Navistar countersued and briefly stopped shipping engines to Ford. The automaker promptly obtained a court order that obliged Navistar to resume shipments but also forced Ford to hand over half of the $160 million in disputed payments it had been withholding. Relations have been testy ever since.
In early May, Navistar raised the ante. Noting widespread speculation that Ford might be planning to develop its own diesel engine for use in its pickups, Navistar warned in its Michigan lawsuit that the company would seek $2 billion or more in damages if Ford tries to end its engine-purchase contract before it expires in 2012.
In the new suit, filed Monday, Navistar has unveiled an even more intriguing assertion: Ford is apparently planning to make in North America a smaller version of an engine it makes in Britain for sale in Europe. But Navistar says Ford is using a design that Navistar helped put together and that Ford had promised any North American production of the engine would be done by Navistar.
During a three-year period that began in mid-2000, the complaint says, International worked to design a new diesel engine for Ford under what the two companies called the "Lion Project."
The project, into which Navistar's International Truck and Engine group sank $11 million, was designed to yield an engine smaller in size than the extra-large V-8 diesels Ford buys from Navistar for its heavy F250, F350 and F450 truck models.
Navistar said its engineering team, working at the company's Melrose Park facility and at a Ford research site in Aachen, Germany, developed a workable prototype engine. At 3.6 liters, the engine was relatively small, the lawsuit says, and both Ford and Navistar acknowledged that the engine "would need to be larger than 3.6 liters when sold in North America."
In fact, according to the complaint, Navistar engineers "showed Ford personnel how the Lion V-8 diesel engine could be converted" into a larger version with only minor modifications.
The two companies agreed that Ford would build the proposed Lion engine at a factory in England under license from Navistar, but that Navistar would make the engine if Ford ever began producing the engine in North America.
Since then, Ford has been making the 3.6-liter engines at its United Kingdom plant and putting them in Ford vehicles sold in Europe.
So far, so good, Navistar says. But now, the company contends in its suit, press reports indicate Ford is developing a 4.4-liter V-8 diesel engine that it plans to begin producing in North America by late 2009 or 2010.
It appears, the complaint continues, "Ford has used the Lion design to produce the 4.4 liter ... by making the same slight changes that International's Lion Project engineers had recommended." And in violation of the contract it signed earlier, the suit says, Ford hasn't hired Navistar to produce the Lion diesels for North America. The suit says, Ford intends to build the engines itself, at a plant in Chihuahua, Mexico.