A nonunion Navistar plant is supplying Ford with diesel engines as the companies remain locked in a pricing dispute and Navistar deals with UAW strikes.
Navistar International Corp. is relying on subsidiary International Truck and Engine Corp.s Alabama engine factory to help it weather a second week of UAW walkouts. The UAW struck International on Oct. 23 -- and there has been no sign of progress at the bargaining table since then.
International spokesman Roy Wiley said production increases ordered at International Diesel of Alabama LLC in Huntsville will ensure that a steady supply of diesel engines for Super Duty trucks reaches Ford Motor Co. while negotiations continue.
They have all the capacity in the world there. This is not a big issue for them, Wiley said.
Only nonunion plant
The Huntsville plant is Navistars only nonunion engine operation and one of two sources of diesel engines for Ford in North America. Among its products: the 6.4-liter Power Stroke engines that power Fords profitable Super Duty trucks.
Internationals engine plant in Indianapolis is the primary supplier of Power Stroke engines to Ford. That factory has been shut down since Oct. 23, when more than 4,000 UAW members walked out of nine Navistar facilities in six states.
But its an ongoing pricing dispute between Navistar and Ford, not the union walkouts, threatening the 28-year relationship between International and its largest customer.
Navistar halted shipments of Power Stroke engines to Ford in February, accusing the automaker of not honoring terms of the agreement under which the engines were built.
Deliveries resumed within days, after a judge ordered Ford to pay Navistars asking price of $7,673 an engine until the dispute could be resolved. So far, it hasnt been.
The ordeal added fuel to a court battle between Ford and Navistar over warranty costs on the previous generation 6.0-liter Power Stroke engine.
Ford filed suit against Navistar in January, contending Navistar failed to live up to an agreement to share warranty costs. It also accused Navistar of not negotiating in good faith on prices for the new Power Stroke engine.
Navistar contends Ford owes it $80 million as part of the ongoing litigation. It also filed a $2 billion countersuit accusing Ford of developing its own diesel engine for pickups.
Navistars contract with Ford on the new Power Stroke engines runs through 2012. But judging from public comments made by both sides, the partnership appears doomed, said Nathan Spunt, an analyst with credit rating company Fitch Ratings in New York.
In a note to investors last week, Spunt said Ford and Navistar are apart on price by about $1,500 per engine on the 6.4-liter Power Stroke or about $338 million on the approximately 225,000 Super Duty trucks that Ford sells annually.
Navistar is ready to walk away from the Ford business if its not profitable. And that might be the best option, he told Automotive News.
Navistar has been the sole supplier of diesel engines to Ford in North America since 1979. If the two part ways, Navistar can still meet its goal of $15 billion in revenues and 500,000 engines annually by 2009, CEO Daniel Ustian told investors during a conference call last week.
With or without Ford
Were somewhere around 500,000 engines today, and we have a plan to get to 500,000. This is without Ford, Ustian said. Our intentions are to keep that on a long-term basis with Ford, but we know thats a risk.
If Navistar loses the Ford business, it would seek to make up the volume through sales to the military, sales to India and sales to other customers.
Ford spokeswoman Kristen Kinley said she couldnt comment on the tone of the legal issues between Navistar and Ford. But she did say the pending litigation is scheduled for trial in June 2008.
She added that a judge dismissed Navistars countersuit against Ford in which Navistar sought $2 billion in damages, accusing Ford of developing its own diesel engine system.
The judge didnt dismiss the countersuit based on merit, or lack thereof, but because Ford and Navistar should settle their differences on their own. Kinley said the only way the two could get out of the diesel contract before 2012 would be through mutually agreeable terms.
Navistar, of Warrenville, Ill., ranks No. 45 on the Automotive News list of the top 100 global suppliers, with estimated parts sales to the automakers of $3.40 billion in 2006.
Ryan Beene contributed to this report.