Reliance on a single supplier is creating problems for Land Rover's Discovery sport-utility.
Land Rover has won two court decisions to prevent receivers of bankrupt chassis supplier UPF-Thompson halting delivery of Discovery chassis before May.
Receivers had threatened to stop chassis deliveries unless Land Rover agreed to a E60 million lump sum to bail out UPF-Thompson. Land Rover has refused to pay, stating that the supplier's insolvency had nothing to do with Land Rover contracts.
But the vulnerability of Land Rover and its family of suppliers goes beyond a single supplier trying to hold the automaker hostage.
Parent company Ford's decision to put Land Rover on a 'lean distribution' system could also have backfired.
Before Ford took over the company in May 2000, Land Rover typically had several months of inventory in the distribution pipeline, said Land Rover President Bob Dover. But under lean distribution, any disruption in the flow of essential parts would affect Land Rover immediately.
Also, under Ford's new pay-on-production relationship with suppliers, Ford pays suppliers of manufacturing equipment not in a lump sum, but as each completed car rolls off the line.
The tradeoff is that Ford does not buy the production tooling - the supplier maintains ownership.
Land Rover has not yet adopted the pay-on-production system, but Ford is eager to extend its purchasing strategies to its subsidiary operations.
But if Land Rover had been using the pay-on-production system, it would not have the option of seizing its tooling from UPF-Thompson. Because it owns the production tooling UPF-Thompson uses to build the chassis, Land Rover has the right to move the tooling to another supplier, even though a new supplier might need six to nine months to fully restore chassis production.
Ford said it would not re-evaluate its pay-on-production relationship with suppliers.
'We think this is an exception to the rule, and we will not change our long-term purchasing strategy,' said Ford of Europe spokesman Hans-Jurgen Fuchs.
Land Rover is also trying to get British bankruptcy law changed after recent events.
British bankruptcy law differs from most other industrialized countries. Under US Chapter 11 proceedings, for example, companies are temporarily protected from having to pay outstanding debts while they try to recover under court supervision. But under British bankruptcy law, creditors of insolvent firms are allowed to chase customers to obtain funds to pay debts.
'Chapter 11 gives a company protection while everything gets sorted out,' Dover said. 'Here [in the UK] it's the Wild West. The implication is that companies will be guarantors for their suppliers' debts. We are Land Rover the manufacturer, not Land Rover the bank.'