As officials of Toledo's Dana Holding Corp. struggled with deteriorating business conditions late this summer, a key supplier provided a further, unexpected jolt.
Unable to turn a profit at a metal-casting plant in Lufkin, Texas, after customers in the auto parts industry reduced orders by 70 percent, Citation Corp. first demanded Dana pay higher prices immediately. Then, less than two weeks later, the Novi, Mich., firm announced it was closing the Texas operation and advised the Toledo company to take its business elsewhere.
The matter has landed in U.S. District Court in Toledo, where Dana warns that the dispute could eventually force the temporary shutdown of auto and truck plants it supplies.
The Toledo firm contends it will lose $600,000 a day if it is forced to suspend production and could face $5 million a day in penalties if customers' business is interrupted because Dana cannot supply needed parts.
"The effect on Dana will be devastating and such action also is likely to have a significant ripple effect on the entire U.S. automotive and light truck manufacturing industry," the Toledo firm stated in its complaint.
The part at issue is a metal yoke used by Dana to make vehicle drivetrains. Citation supplies nearly all the parts used by the Toledo firm.
Spokesman Chuck Hartlage refused to elaborate on the claims, saying Dana doesn't comment on lawsuits.
But as part of the case, before Judge James Carr, the firm seeks unspecified damages and demands that Citation continue to supply the part.
The judge has not ruled on a company request for a temporary restraining order sought by Dana.
The lawsuit was transferred to federal court from Lucas County Common Pleas Court Oct. 31.
As it stands, Citation wants to discontinue production for Dana in January, which the Toledo firm says doesn't give it enough time to nail down an alternative supplier. The Texas plant, with 375 employees, is scheduled to close in March.
The fast deterioration there, as evidenced by an exchange of letters between the two companies, shows how quickly events are moving in the troubled U.S. auto industry.
On Sept. 3, Michael O'Brien, vice president for sales at Citation, sent a letter to Dana Purchasing Director Gary Baugh, confirming an agreement to extend a supply agreement by six months to March 31, 2010, court documents show.
Then two weeks later, citing "the unprecedented decline of automotive and light truck production," along with higher costs for energy and raw materials, Mr. O'Brien wrote the Dana purchasing director again - this time to demand price increases effective Oct. 1.
Dana refused to accept the increases. In short order, Citation announced it would close the Texas plant, although the Dana dispute seems to be only one factor.
Citation officials couldn't be reached for comment.
Ann Wilson, senior vice president for government affairs at the 700-member Motor & Equipment Manufacturers Association, declined comment on the dispute. But she said that the problems of U.S. car makers are trickling down to their suppliers.
"We have seen over the last few months a growing concern about credit availability, availability of capital, and reduction in volume and what that is doing to the need for components our members develop and manufacture," she said.
The trade group is pushing Congress to include parts makers in any bailout developed for the auto industry, she said.
Dana said last week that it lost $279 million in the third quarter.
In response, the firm will boost layoffs this year from 3,000 to 5,000 - 14 percent of its global work force - and shut 10 plants in the next two years.
Dana shares fell 21 cents, or 13 percent, to $1.39 each in trading on the New York Stock Exchange yesterday.
Citation has been granted an extension until Dec. 15 to respond to the Dana lawsuit.
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