Navistar International Corporation on Monday said that it is suspending production of the ‘Power Stroke’ diesel engine that it builds for Ford “because Ford has stopped honouring the terms of agreement under which the engines were built”.
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The engine is used in Ford’s F-series Super Duty pickup trucks.
Navistar said its 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 6.4-litre engine that meets 2007 emissions standards while increasing performance, durability and fuel economy.
“Ford, [using the International diesel engines], has enjoyed leadership market share of close to 50% for many years,” the statement added.
International produces the Ford engines at plants in Indianapolis, Indiana, and Huntsville, Alabama, and production of those engines at both facilities would be halted immediately, Navistar’s statement said. It added that it would continue to produce engines for other customers.
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By GlobalDataNavistar also said that it pays its suppliers and employees under contract terms and that it expects Ford to honour the terms of its agreement.
The Dow Jones news agency said the move was the latest escalation in an ongoing dispute between Ford and Navistar – in January, the automaker sued its supplier over pricing and a contract dispute.
The report noted that the truck has traditionally represented at least 300,000 vehicles worth of annual volume for Ford and 70% of Super Duty trucks carry diesel engines.
Navistar spokesman Roy Wiley told Dow Jones that Ford has not been paying the engine supplier “according to the terms of the contract.” He said Navistar was making about 400 of the engines a day at its plant in Indianapolis before it stopped shipping the engines to the automaker last week.
He reportedly did not give a timeline for when Navistar could resume production.
“We can support production in the near term,” Ford spokeswoman Becky Sanch told Dow Jones. She said Ford and Navistar are working to resolve the issues surrounding the dispute, but declined to give details.
Bear Stearns analyst Peter Nesvold told Reuters that if the disruption extends for more a month, it could lead to an $US11.6bn in annualised 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 reportedly said in a note to clients.
The Reuters report said Navistar the volume of about 400 of the engines per day for Ford was down significantly from about 1,060 per day at peak production. The supplier plans to shut its Indianapolis facility that produces engines only for Ford temporarily – it has 700 workers at the engine plant and 500 at the foundry.
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, Reuters added.
