Chrysler sues Daimler alleging breach of contract

Chrysler LLC sued Daimler AG, seeking damages for an alleged breach of contract the U.S. automaker said may derail manufacturing of its vehicles for the 2010 model year and beyond.

Daimler refuses to honor contracts transferred after the sale of Chrysler's best assets to Fiat SpA, according to the lawsuit filed Aug. 21 in U.S. Bankruptcy Court in Manhattan. Daimler is demanding payments it previously waived for past contracts on engine parts, and is using the issue as "leverage" to avoid signing new supply agreements for steering columns and torque converters, Chrysler said.

"Daimler's bad faith conduct and contractual breaches following the acquisition threaten to derail these efforts, severely harm Chrysler, and send devastating ripple effects through the automotive industry," lawyers for Chrysler wrote, saying key parts hadn't been delivered as of Aug. 21.

Chrysler said the parts are "essential" for 2010 vehicles, and without them, the company may have to shut down plants and idle workers. The torque converters are for Mercedes- Benz W5A580 automatic transmissions, according to copies of the contract filed in court.

The dispute would affect production at Chrysler's sport- utility plant in Detroit that makes the Jeep Grand Cherokee and a sedan plant in Brampton, Ontario, that makes the Chrysler 300, Dodge Challenger and Dodge Charger, Chrysler spokesman Mike Palese said. Production hasn't yet been affected.

Han Tjan, a Daimler spokesman, declined to comment.

Creditors' Lawsuit

Chrysler filed for bankruptcy protection on April 30. A group led by Italy's Fiat completed the purchase of most Chrysler assets on June 10, forming the world's sixth-largest carmaker. As part of that deal, secured lenders got $2 billion in cash for their $6.9 billion in loans.

Chrysler creditors have sued Daimler separately, seeking to recover "billions" of dollars they claim the Stuttgart, Germany-based company stripped of Chrysler's assets in 2007, just before a sale to Cerberus Capital Management LP.