Thursday, March 1, 2007

Gentleman, Fighting Over Engines

Wonder if the Governor is cognizant of this skirmish? We’ll know if Fletcher proposes more Fordfare.

From Louisville Courier-Journal:

A Michigan judge late tonight ordered Navistar to resume diesel engine shipments to Ford Motor Co.’s Kentucky Truck Plant on Chamberlain Lane, although the automaker still plans to temporarily cut production at the plant starting tomorrow.

"Once we start getting engines again, we’ll get back to our normal production schedule as soon as possible," Ford spokeswoman Becky Sanch said tonight. Earlier today, Sanch said Ford planned to cut some production tomorrow and cancel all work Friday on the F-Series Super Duty Trucks built at the plant.

Next week, Ford planned to run only one of three production shifts there because of tight engine supplies. Engine maker Navistar, of Warrenville, Ill., said Monday that it had ceased shipments of the 6.4-liter diesel engine used in the 2008 F-Series Super Duty trucks and idled its Indianapolis plant in a dispute with Ford over payments for the engines.

Its last load of engines arrived at Ford on Feb. 22. The diesels are the most popular engine option in the Super Duty because of their towing power. "With the state that Ford’s in right now, it seems to me that if you have a cash cow … you make sure that that plant works," said Scott Smith, an employee at the Kentucky Truck Plant. Analysts have said Ford’s Super Duty trucks are among its most profitable vehicles.

The plant is Ford’s largest North American factory and accounts for more than 5,000 of its 8,000 employees in Louisville. While plants are shut down, workers collect state unemployment insurance and supplemental payments from Ford that can total as much as 95 percent of typical wages, although workers said compensation doesn't always reach that goal. The production cut is particularly painful to Kentucky Truck workers. Last year, the plant was down several times as Ford adjusted output to match slowing demand for pickups.

Things had been looking up this year, however. Ford recently announced that orders for the 2008 truck were better than expected, and workers said they were looking forward to a steady production schedule again. Smith said he hopes the problems with Navistar inspire Ford to design and build its own diesel engine, as it does in Europe. Those engines are smaller and less powerful than the ones produced by Navistar, however, and are not suitable for the Super Duty. "We can’t keep being crippled by these vendors," Smith said.

Navistar stopped shipping engines to Ford because the automaker was not paying full price for the products. In January, Ford sued Navistar, saying the company failed to pay its share of repair costs from the problem-prone 6-liter diesel used in the 2002-2007 model years. In its suit, Ford said it was withholding some of those costs from payments to Navistar on the new engines. Oakland County (Mich.) Circuit Judge John McDonald granted Ford’s motion for a temporary restraining order, which requires Navistar to resume making and shipping diesel engines to Louisville, Sanch said.

But the judge’s order also requires Ford to stop withholding funds. Navistar spokesman Roy Wiley said, "We have no problem producing engines for Ford. We just want to be paid. They have not been paying for those engines because of the warranty dispute." Wiley declined to say how much money the companies are fighting over. "It’s a lot," Wiley said. "We wouldn’t do this if it were just a small number."

About 75 percent of the Super Duty trucks get diesel engines. The rest get V-8 or V-10 gasoline engines. Analysts have said neither company can afford to keep the dispute going. Ford needs the high profit margins found on diesel trucks, and Ford is Navistar’s biggest engine customer. Earlier this week, Bear Stearns analyst Peter Nesvold estimated that diesel trucks are worth about $11.6.billion in sales to Ford each year. The engines generate about $2.7 billion in revenue for Navistar.

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