WASHINGTON - Dana Corp. has resolved a series of long-standing disputes with Citation Corp. in a deal it said defuses the risk that one of its biggest suppliers might halt the shipment of parts used in Ford Motor Co. and Nissan Motor Co. automobiles.
In papers filed with the U.S. Bankruptcy Court in Manhattan late Thursday, the company said the deal sharply lowers the price Dana has been paying for Citation parts used to make such automobile components as axle assemblies. It also obligates Citation to pay Dana about $790,000 to settle quarrels involving past overpayments.
Dana and Citation are both casualties of turmoil in the U.S. automobile industry, which has been beset by sluggish vehicle demand and steep production costs. Over the last few years, a growing number of auto-parts manufacturers have tumbled into bankruptcy proceedings amid production cutbacks by big auto manufacturers.
Citation, based in Birmingham, Ala., has been through two bankruptcy reorganizations since 2004. Dana, based in Toledo, Ohio, began its bankruptcy restructuring in March 2006. It has said it expects to complete that process by the end of the year.
Last year, Dana bought about $30 million worth of component parts from Citation, according to court documents. Citation has been a Dana supplier for more than a decade. But the relationship became strained in 2004, when Citation first tumbled into bankruptcy.
In 2004, Citation threatened to stop supplying parts unless Dana agreed to a price increase, Dana said in court documents. A year later, Dana contended that Citation parts didn't contain the full amount of the $6 million worth of steel that Dana had purchased for Citation's use.
In March of 2006, just days before Dana filed for bankruptcy protection, Citation threatened to halt all shipments to Dana unless the company paid $4.9 million to "clear all open invoices."
To avoid a "devastating shutdown" of its factories, Dana said it made an immediate wire transfer of $3.5 million to Citation. In September 2006, Citation increased its yoke prices by 20 percent, which Dana said it paid "under protest." Yokes are used to make axle assemblies.
Under the settlement with Citation, those prices will be lowered by more than 10 percent, retroactive to September 2006, according to court documents. Citation will provide Dana a refund to cover price differences on parts purchased after that month.
Dana asked U.S. Bankruptcy Judge Burton Lifland, who is overseeing its Chapter 11 restructuring, to approve the deal. Lifland is scheduled to consider the matter at a June 20 hearing.
"Absent the settlement, there would be no choice but to resort to costly and time-consuming litigation involving substantial risk and the probability of at least temporary - and potentially long-lasting - business disruption through the cessation of shipment of parts," Dana said.
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