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Navistar's latest lawsuit heats up feud with Ford

From Tribune| June 07,2007

Navistar International Corp. has raised the stakes in its feud with Ford Motor Co. by filing a lawsuit that alleges that Ford, which is currently a key buyer of Navistar diesel engines, is planning to begin making its own diesel engines -- using a design Navistar engineers created at Ford's request.

"Rather than honor its promises and contracts," the Warrenville truck- and engine-maker contends in a complaint filed this week in Cook County Circuit Court, "Ford intends to use the [Navistar] International design and manufacture diesel engines itself, without compensation to International."

The new breach-of-contract suit adds fuel to a surprisingly nasty spate of litigation that has broken out between the two companies.

For decades, Navistar has been the sole supplier of the diesel engines Ford puts into its heavy-duty pickup trucks. But over the past several months, the relationship between the supplier and its customer has soured. Navistar contends that Ford, faced with extreme financial distress, has begun to improperly squeeze its suppliers, violating long-standing contracts as it does so.

In January, Ford began to withhold payments for the new-generation 6.4-liter engines Navistar was delivering, saying it wanted to recover certain shared warranty costs. Ford also filed suit against Navistar in a Michigan state court, alleging that the engine supplier was overcharging the auto company.

Navistar not only countersued, but in late February briefly stopped shipping engines to Ford. Ford soon convinced a court to issue a temporary restraining order obliging Navistar to resume shipments (and requiring Ford to pay in full and give back $80 million of withheld payments), but relations remain testy.

In early May, Navistar raised the ante: Noting widespread speculation that Ford might be planning to develop its own diesel engine for use in its pickup trucks, Navistar warned in its Michigan lawsuit that the company would seek $2 billion or more in damages if Ford tries to end its current engine-purchase contract before it expires in 2012.@@page@@

Now, in a new lawsuit filed Monday in Chicago, Navistar has unveiled an even more intriguing assertion. Ford not only is apparently planning to build its own engines, Navistar claims, but the design for the smaller-size diesel Ford intends to make originally came from Navistar.

During a three-year period that began in mid-2000, the complaint says, International worked to design a new-version diesel engine for Ford, under what the two companies called the "Lion Project."

The project -- into which Navistar's International Truck and Engine group eventually sunk $11 million of its own money -- was designed to yield an engine smaller in size than the extra-large-scale V-8 diesels that Ford buys from Navistar for its heay F250, F350 and F450 models.

Navistar said its engineering team, working at the company's Melrose Park facility and at a Ford research site in Aachen, Germany, developed a workable prototype engine. At 3.6 liters, the engine was relatively small, the lawsuit says, and both Ford and Navistar acknowledged that the engine "would need to be larger than 3.6 liters when sold in North America."

In fact, according to the complaint, Navistar engineers "showed Ford personnel how the Lion V8 diesel engine could be converted" into a larger version with only minor modifications.

The two companies agreed that Ford would build the proposed Lion engine at a factory in England under license from Navistar, but that Navistar would make the engine if Ford ever began producing the engine in North America,.

Now, International's suit says, press reports indicate Ford is developing a 4.4. liter V8 diesel engine for production in North America by late 2009 or 2010, reportedly at a Ford facility in Chihuaha, Mexico.

It appears, the complaint continues, that "Ford has used the Lion design to produce the 4.4 liter ?by making the same slight changes that International's Lion Project engineers had recommended." And in violation of its contractual agreements, "and despite its numerous promises," the suit says, Ford hasn't hired Navistar to produce the Lion diesels for North America.

The suit asks the Illinois court to order Ford to pay it damages of "at least hundreds of millions of dollars."
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