Production of Land Rover’s mid-range Discovery SUV range could be suspended due to a legal dispute, laying off 1,400 production line workers and possibly affecting 10,000 further jobs at supplier companies.

According to The Financial Times (FT), Land Rover has taken legal action against KPMG after the internation audit firm demanded payments of about £45 million (approximately $US65 million) from the SUV maker to secure the future of Upf-Thompson, its only supplier of Discovery chassis.

The FT said that KPMG was called in last month as receivers after UPF-Thompson, which employs 600 and has supplied Land Rover since the 1950s, had accumulated debts estimated at over £50m — virtually double its annual sales.

Land Rover corporate communications press officer James Andrew said the company was “very, very disgruntled” at KPMG’s action.

“We can’t believe it’s being handled in this way,” he said. “KPMG is a very reputable company but they are not handling this in a reputable way.”

The receivers at KPMG Corporate Recovery, who were appointed on 3 December, said in a statement issued today that they wanted “to negotiate with Land Rover to secure UPF’s future and safeguard the continued production of the Land Rover Discovery”.

“KPMG’s legal requirement as receiver is to achieve maximum value for the assets of UPF, including UPF’s supplier relationship with Land Rover Group,” the statement added.

“As receiver to UPF, I have a duty to obtain the best price for the assets of the business, including treating Land Rover’s reliance on UPF as a valuable asset. We are also trying to protect the future of the business, and the people who work there,” said KPMG Corporate Recovery partner and administrative receiver of UPF Mark Orton.

“On Friday, I reaffirmed my desire to meet with Land Rover or Ford at any time, either in the UK or the US. Whilst I understand Ford’s concern, I hope they will understand our legal duties and therefore take us up on our offer to reach a negotiated settlement.”

KPMG’s statement added that a precedent for this kind of dispute was set two years ago following the demise of TRANSTEC when receivers asked Ford to agree to a new five year contract and a 60% price increase.

In that case, KPMG said, Mr Justice Jacobs ruled that, “It is his (a receiver’s) job to get in as much money as he can”. He stated that the receivers had acted entirely properly as they were entitled to exploit a customer’s vulnerability since their prime responsibility was to raise money to repay creditors.

KPMG said UPF is still being traded as normal, and supply of parts to Land Rover Group is being maintained “while attempts are being made to find a settlement”.

The FT said that Land Rover has warned the UK government that KPMG’s actions were in breach of the SUV maker’s contracts with its chassis supplier, and could jeopardise its turnaround plan to reverse annual losses of $US250 million.

The newspaper added that advisors had told government trade and industry secretary Patricia Hewitt about the dispute following a threat from Land Rover chairman Bob Dover to buy chassis abroad if KPMG followed through with its demand.

However, while confirming that the FT report was largely accurate, Land Rover’s spokesman Andrew denied that Bob Dover had threatened to seek an overseas chassis supplier. “He did not say that,” Andrew told just-auto.

The Financial Times report said that UPF sells 70,000 chassis a year to Land Rover, and is also a supplier to General Motors and DaimlerChrysler. The newspaper added that it “understood” that Dover – who has reportedly told senior Ford management in Detroit about the dispute – is currently urging other car makers, suppliers and dealers to ‘blacklist’ KPMG unless it drops its action against Land Rover.

Dover’s colleagues claimed he was “spitting bullets” over the affair, the FT added.

The newspaper said it also “understood” that UPF’s debt burden was related mainly to a foreign business venture, and not due to contract difficulties or payment delays by Land Rover or other vehicle makers.

Land Rover last week won a court injunction forcing UPF to continue supplies until January 25, the FT said. But, the newspaper added, it has warned both union leaders and suppliers that it could be forced to suspend Discovery oroduction unless the dispute is resolved.

“We have no wish or intention to force Land Rover to halt production. But their reliance on this company is an asset and they should be obliged to pay more than they would normally.” KPMG’s Orton told the FT.

The newspaper said that Land Rover has offered to increase the price it pays for the chassis and also willing to make a goodwill payment of up to £4 million to secure a continued supply of Discovery chassis. It has also pledged to back a management buy-out or trade sale of the company, the FT added.

But, the FT said, KPMG rejected the offer and demanded “additional payments by Land Rover amounting to many millions of pounds over and above what is required for the company to meet its costs”.

As a result of a court injunction obtained on Friday, Land Rover had secured chassis supplies from UPF-Thompson until January 25 but, if there was no solution, “we have a problem”, Land Rover spokesman Andrew told just-auto.

He added that Land Rover was hopeful that KPMG would soon sell UPF-Thompson. There was a “possibility” a successful management buyout would soon be concluded.

If the sale fell through, however, Land Rover would have to seek a new supplier, Andrew said. That was likely to take six months.

The tooling currently used by UPF-Thompson to make the Discovery chassis was jointly engineered and manufactured by the supplier and Land Rover.