Ford Plans Own Diesel Engines, Navistar Says

Ford Motor Co. is working to develop its own diesel engines for use in its F-Series Super-Duty pickups, says the auto maker’s current diesel supplier, Navistar International Inc.

An amended counter-complaint filed by Navistar claims Ford does not intend to purchase diesel engines from the supplier after ’09, although the contract between the two companies is binding through 2012. Navistar is seeking $2 billion in damages from Ford.

A copy of the counter-complaint obtained by Ward's says Navistar has “information and belief” that “Ford has been working on a program to design and manufacture its own diesel engines for model-year 2010.”

Navistar bases its claim, in part, on communication with its suppliers.

“Ford told Siemens (VDO Automotive), one of (Navistar’s) key suppliers, that Ford will not comply with the agreement, and will not purchase diesel truck engines from Navistar after model-year 2009,” says the complaint, filed Wednesday in an Oakland County, MI, court.

“On information and belief, Ford has made the same statement to others in the marketplace. Ford has informed third parties that despite the agreement designating (Navistar) as Ford’s exclusive supplier of diesel engines through July 31, 2012, Ford intends to manufacture its own engines and not purchase them from (Navistar).”

Ford’s apparent decision to back out of its deal has caused problems that go beyond Navistar, the engine supplier says.

Navistar claims Ford intends to ignore contract build own diesel for Super Duty pickups.

“Ford not only breached the agreement but has also interfered with (Navistar’s) relationships with its own suppliers, who are worried about the consequences should Ford improperly refuse to buy diesel truck engines after 2009.”

A Ford spokeswoman says there is “no basis” for Navistar’s allegations.

“If there is anything true about breaches in the contract, it is that they have already occurred by Navistar for not honoring its obligations on warranty and pricing,” the spokeswoman tells Ward's.

She adds that Ford intends to honor its contract and will be vindicated of the charges in court. The trial is slated to begin June 26, 2008.

Bad blood between the companies dates back to January when Ford filed a lawsuit claiming Navistar owed money for warranty repairs on the previous-generation 6.0L PowerStroke diesel. Ford alleged Navistar defaulted on an agreement to share warranty costs.

At the time, Navistar said Ford’s claims were “totally without merit,” and it would “vigorously respond in court.”

The argument escalated when Ford reportedly took the unorthodox move of subtracting the amount of money it said Navistar owed from the agreed-upon price of the new diesel mills. Ford reportedly began paying Navistar $6,167 per-unit price of $7,673.

Warrenville, IL-based Navistar responded by announcing it had ceased production and delivery of its new 6.4L PowerStroke engines, alleging Ford had breached terms of their current supply agreement.

However, an Oakland County court ruled on Feb. 28 that Navistar had to resume engine shipments.

In the latest filing, Navistar claims the auto maker already has attempted to void the current supply agreement. “Ford wanted to terminate the agreement at the end of Model Year 2009,” the document reads. “(Navistar) offered reasonable and appropriate terms for said termination, but Ford refused.”

Navistar also disputes Ford’s claims that Super Duty pickups with the 6.0L diesel could not be repaired. The auto maker said it had to buy back the trucks from customers.

Navistar says when Ford finally allowed its engineers to attempt repairs, they had a success rate of nearly 100%, rendering as invalid the auto maker’s original claim for unpaid warranty costs.

Furthermore, “in almost half of these instances, the repair (to the extent one was even necessary) was made with such relative ease that even a marginally trained technician should have been able to diagnose and fix the problem the first time,” Navistar says in the filing.

Navistar sums up Ford’s actions by saying the auto maker “has turned desperate” due to its current weakened state. The auto maker lost a staggering $12.7 billion last year.

“Ford has begun to ignore its contractual responsibilities and demand concessions from (Navistar) without any legal basis, in an attempt to help its bottom line,” the engine maker says in its filing.

Navistar claims Ford went so far as to say that if the engine maker didn’t accede to its demands, it would be faced with a single alternative: “facing the wrath of the entire Ford Motor Co.”

Meanwhile, a report in Bloomberg News says Fiat Automobiles SpA, Italy's biggest auto manufacturer, is working on entering the U.S. market through its Iveco truckmaking unit, perhaps by purchasing Navistar.

“We are looking for ways to establish a presence for Iveco in the U.S.,” CEO Sergio Marchionne tells Bloomberg. “Our target is to transform Iveco from an international player to a global one.”

Navistar shares rose 18 % over the three days following the Bloomberg report.

However, Marchionne somewhat tempered the speculation by adding the truck maker’s entry into the U.S. market “may be done through the most unusual and unconventional ways that no one has ever forecast,” and “doesn't have to mean buying" Navistar.

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