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Press Release Source: Navistar International Corporation
Navistar Suspends Production of Ford Power Stroke(R) Diesel Engines in Dispute Over Commercial Terms
Monday February 26, 7:00 am ET
WARRENVILE, Ill.--(BUSINESS WIRE)--Navistar International Corporation (OTC:NAVZ - News) announced today that it is suspending production of the Power Stroke® diesel engine that it builds for Ford Motor Company because Ford has stopped honoring the terms of agreement under which the engines were built.
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Navistar's principal operating company, International Truck and Engine Corporation, has been the exclusive diesel engine supplier for Ford's heavy duty pickup trucks since 1979 and recently launched a new 6.4L Power Stroke® diesel engine that meets 2007 emissions standards while increasing performance, durability and fuel economy.
Ford, using International-manufactured Power Stroke® diesel engines, has enjoyed leadership market share of close to 50 percent for many years. Navistar believes the new Power Stroke 6.4L diesel engines provide Ford the opportunity to maintain or improve this leadership position. Trade editors who have driven Ford's 2008 F-250 equipped with the Power Stroke® have given it rave reviews.
International currently produces the new 6.4L Power Stroke® diesel engine at its engine plants in Indianapolis, Ind., and Huntsville, Ala., and as a result of the dispute over commercial terms, production of those engines at both facilities will be halted immediately. The Huntsville operation will continue to produce engines for other customers.
Navistar said that it pays its suppliers and employees under contract terms and that it expects Ford to honor the terms of its agreement.
Navistar International Corporation (OTC:NAVZ - News) is a holding company whose wholly owned subsidiaries produce International® brand commercial trucks, MaxxForce brand diesel engines, IC brand school buses, and Workhorse brand chassis for motor homes and step vans. It also is a private-label designer and manufacturer of diesel engines for the pickup truck, van and SUV markets. The company also provides truck and diesel engine parts and service. Another wholly owned subsidiary offers financing services. Additional information is available at: http://www.navistar.com.
Contact:
Navistar International Corporation
Roy Wiley, 630-753-2627 (Media)
Heather Kos, 630-753-2406 (Investors)
http://www.nav-international.com
UPDATE 1-Navistar stops shipping diesel engine to Ford
Mon Feb 26, 2007 9:46 AM ET
(Adds details from Navistar, background, dateline)
CHICAGO, Feb 26 (Reuters) - Navistar International Corp. <NAVZ.PK> said on Monday that it had stopped shipping diesel engines to Ford Motor Co. <F.N> that power the automaker's key F-Series Super Duty pickup trucks because of a contract dispute.
Navistar builds the 6.4-liter Ford Power Stroke diesel engine for the 2008 Ford F-Series Super Duty, a key launch this year for the automaker in its move to rebound from billions of dollars of losses in recent years.
The engine supplier said Ford had stopped honoring terms of its agreement with Navistar and it would halt production for the automaker immediately.
"We shipped the last engines to Ford last week," Navistar spokesman Roy Wiley said.
Bear Stearns analyst Peter Nesvold said that if the disruption extends for more a month, it could lead to an $11.6 billion in annualized revenue loss for Ford.
"While we don't currently expect an extended outage, 30-plus days would be material to both Navistar and Ford," Nesvold said in a note to clients.
Navistar produces about 400 of the engines per day for Ford, down significantly from about 1,060 per day at peak production, Wiley said.
Navistar plans to shut its Indianapolis, Indiana, facility that only produces engines for Ford temporarily, Wiley said. It has 700 workers at the engine plant and 500 at the foundry.
A Huntsville, Alabama, facility builds engines for Ford and other customers and is expected to remain open, Wiley said.
Super Duty trucks are the most popular vehicles in their class, averaging 50 percent market share in the heavy-duty pickup truck segment during the past five years.
Ford sued Navistar in January over warranty costs and engine prices. The automaker had delayed the launch of the Super Duty pickup truck after ongoing problems with Navistar.
Warrenville, Illinois-based Navistar has been the exclusive diesel engine supplier for heavy duty Ford pickup trucks since 1979 through its International Truck and Engine Corp.
Navistar has said it invested more than $100 million in new machinery and other equipment at its manufacturing facilities in Indianapolis and Huntsville to build the new engine. (Reporting by Poornima Gupta in Detroit, David Bailey in Chicago and Anthony Kurian in Bangalore)
Navistar furloughs 1,200 on Eastside
Company shuts plant that makes Ford's 6.4-liter engine in dispute with automaker
By Ted Evanoff
ted.evanoff@indystar.com
February 27, 2007
Navistar International suddenly closed its Indianapolis diesel plant for an unspecified period Monday when a legal dispute with Ford escalated into a bitter fight.
Navistar idled the 1,625- employee Eastside complex, known as International Truck and Engine, in a pointed effort to deprive Ford of 6.4-liter diesels for the best-selling line of F-series pickup trucks.
Ford and Navistar have wrangled in court over who should pay for warranty costs associated with mechanical problems in an older 6-liter diesel made in Indianapolis that has since been discontinued.
Curtailing shipments of the new 6.4-liter engine could leave the Indianapolis complex without Ford as a customer after the contract with the automaker expires in 2010, industry analysts said. Ford has been the plant's only customer for two decades.
"This is a gutsy move by Navistar. Ford doesn't have a lot of options. It's up against the wall,'' said auto analyst John Wolconowicz of market researcher Global Insight in Lexington, Mass.
"Ford needs its Super Duty pickup to have a successful launch. It's the most promising new product they'll have this year,'' Wolconowicz said.
"Navistar is up against it because we see a significant increase in diesel penetration in light trucks for the industry. They don't want to (anger) their best customer at a time like this.''
Navistar's Indianapolis plant in December began sending Ford the 6.4-liter models, which are engineered to meet tighter federal emission standards.
Ford, in turn, launched a major advertising campaign touting the new Power Stroke diesels in its F-series line of Super Duty pickups. However, Navistar contends Ford has not paid for the 6.4-liter engines. Ford instead has pocketed the money in a so-called debit account. Ford created the debit account to recover warranty expenses on the 6-liter model, Navistar spokesman Roy Wiley said. "They owe us a bundle of money,'' Wiley said. "In all my years in the automotive industry, I don't recall an auto company not paying its vendors.''
Ford spokeswoman Becky Sanch said the automaker filed the lawsuit against Navistar and created the debit account to bring the issue to a head.
Wiley predicted Ford and Navistar will settle their differences.
Sanch said Ford has enough diesels in hand for the "near term'' but declined to define that length of time. Analysts consider the diesel Super Duty Ford's most profitable vehicle. Ford sells about 800,000 F-series trucks each year, of which about 320,000 are equipped with the Indianapolis diesels.
Navistar's International Truck employs 700 in the diesel-assembly plant and 500 in the nearby foundry. Another 425 employees were laid off last fall as F-series sales fell.
The Indianapolis plant and an International factory in Alabama are the only sources of diesels on Ford pickups.
February 27, 2007
Ford-Navistar showdown could threaten truck production
Automaker won't say how long Super Duty pickups may be made if price issue isn't settled.
Bryce G. Hoffman / The Detroit News
Ford Motor Co. said Monday that a decision by key supplier Navistar International Corp. to stop supplying diesel engines will not disrupt production of F-Series Super Duty pickups "in the near term."
However, the automaker would not say how long it could keep its truck lines running if the vendor holds out. Ford began producing its crucial redesigned F-Series Super Duty pickups in Louisville, Ky., late last year and the trucks are arriving in showrooms this month.
Navistar announced Monday that it has halted production of the PowerStroke diesel engine it makes for Ford because of an ongoing contract dispute. The Warrenville, Ill.-based engine manufacturer is the exclusive diesel engine supplier for Ford's heavy duty pickup trucks.
In a statement Monday, Navistar said it "pays its suppliers and employees under contract terms and that it expects Ford to honor the terms of its agreement."
But Ford said Navistar is the one violating that contract.
"Ford has always honored the agreement and will continue to do so in the future," said Ford spokesman Tom Hoyt. "We have been working very closely with Navistar for many months to resolve these contract issues."
In January, Ford sued Navistar, saying the engine maker was not complying with warranty cost-sharing agreements and that it had unjustifiably raised prices on its products. The suit said at the time that Navistar had threatened to cut off shipment if Ford did not pay the new prices for its engines.
Navistar said it will stop making the 6.4-liter PowerStroke at its Indianapolis and Huntsville, Ala. factories, but added that the Huntsville plant will continue production for other customers.
Any disruption of Super Duty production would be disastrous for Ford. After losing a record $12.7 billion last year, Ford is counting on the new Super Duty to boost sales of F-Series trucks.
"Ford and Navistar are tied at the hip for diesel engines for the F-250 and F-350," Peter Nesvold, a New York-based Bear Stearns analyst, said in a research note. "While we don't currently expect an extended outage, 30-plus days would be material to both Navistar and Ford."
About 40 percent of the nearly 800,000 F-Series trucks sold by Ford last year were diesel-powered.
"It's impossible to quickly swap out the engine and put another manufacturer's diesel in place," Nesvold said.
One analyst said the companies are likely to reach an agreement before long. "This is likely a short-term negotiation squabble," Andrew Casey, an analyst with Wachovia Capital Markets LLC in Boston, said in a research note
It is not the first time problems with a supplier have threatened an important new vehicle. Last fall, bankrupt Collins & Aikman Corp. briefly suspended parts shipments to Ford's factory in Hermosillo, Mexico, halting production of the Ford Fusion.
With a horde of suppliers either in bankruptcy or close to filing, Ford is working with a consultant to identify troubled suppliers and move proactively to prevent interruptions in parts shipments.
You can reach Bryce G. Hoffman at (313) 222-2443 or bhoffman@detnews.com.
