By Mike Ramsey and Alex Ortolani
Aug. 7 (Bloomberg) -- Chrysler LLC, the third-largest U.S. automaker, risks a possible production shutdown should supplier Dana Holdings Inc. win a lawsuit to end a money-losing contract.
Chrysler would have few options to replace Dana's axles and driveshafts, said James Gillette, a consultant with CSM Worldwide Inc. in Grand Rapids, Michigan.
``It puts an enormous amount of pressure on Chrysler,'' Gillette said in an interview today, a day after Dana asked a bankruptcy judge to let it halt its parts accord on Dec. 31. ``It's not like there are 200 other suppliers they could go to. Dana does have some level of bargaining power.''
The dispute is at least Chrysler's third this year as the automaker tries to shrink spending amid a 23 percent drop in U.S. sales. Chrysler rebuffed a bid for higher prices from Plastech Engineered Products Inc. in February and is tangling with Germany's Continental AG over a parts contract.
Dana, based in Toledo, Ohio, said rising steel prices mean it's losing $75 million annually on its parts agreement for six Chrysler models.
``We're not out here to pick a fight with Chrysler,'' Dana Chairman John Devine said today on a conference call with analysts. The Chrysler business has ``a significant loss and we need to address that,'' he said.
Chrysler's view is that ``while the agreement may end on Jan. 1, 2009, the underlying purchase orders were intended to continue in accordance with their terms,'' said Kevin Frazier, a spokesman for the Auburn Hills, Michigan-based automaker.
Dana Alternatives?
Magna International Inc., American Axle & Manufacturing Holdings Inc. (great Hummer parts in my Wranglers) and Tower Automotive LLC are among a handful of companies capable of stepping in for Dana as a Chrysler supplier, Gillette said. It's unlikely those partsmakers would take a money-losing contract, he said. Chrysler and Tower are both owned by Cerberus Capital Management LP.
Chrysler purchasing chief John Campi told suppliers on May 15 that Chrysler set a goal of reducing parts-production costs by 25 percent over a three-year period.
Dana, which left bankruptcy protection in February, asked U.S. Bankruptcy Judge Burton Lifland yesterday to confirm that its supply agreement ends Dec. 31. Chrysler told Dana it doesn't have the right to end the supply agreement, according to the complaint.
The 2007 accord made Dana the exclusive supplier of driveshafts, axles and other parts to Chrysler until the end of this year, according to the partsmaker. Because Chrysler refused to extend the deal into 2009, Dana said, any orders beyond 2008 are ``unenforceable.''
SUV, Pickup Parts
Dana said it supplies parts to Chrysler's Jeep Liberty, Wrangler and some Grand Cherokee sport-utility vehicles, as well the Dodge Nitro SUV, Viper sports car and some Dodge Ram pickups.
Citing lower U.S. sales and rising costs for steel, Dana announced plans today to cut 3,000 jobs and said it lost $140 million in the second quarter. Dana fell 15 cents, or 2.5 percent, to $5.84 at 4:15 p.m. in New York Stock Exchange composite trading.
Chrysler canceled a contract with Plastech in February and demanded the return of tooling after the closely held supplier requested a price increase as raw-material costs rose.
The move forced Plastech into bankruptcy protection and caused four Chrysler plants to be shut down for several days. Plastech has been partially sold off to supplier Johnson Controls Inc. and remains in bankruptcy.
Chrysler also owes money to Continental, which makes engine-control electronics, for failing to buy as many parts as promised from a plant in Huntsville, Alabama, Continental Chief Financial Officer Alan Hippe said on July 31.
The amount is ``much less'' than $100 million, Hippe said without elaborating.
Continental spokeswoman Michele Tinson declined to comment immediately today on the Hanover, Germany-based company's efforts to collect the money. Frazier, the Chrysler spokesman, declined to comment on the case.
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