Chrysler has gone to court to force former partner Daimler AG to continue supplying the heart of the Grand Cherokee Diesel - its engine.
The frosty split between former partners Daimler and Chrysler just got a lot colder, with the U.S. maker suing the German firm over its decision to stop supplying parts needed for some of Chrysler’s 2010 models.
This is the second time this month the two former allies, known for nearly a decade as DaimlerChrysler AG, have squared off in court. Earlier in August, unsecured creditors who suffered significant losses as part of the Chrysler bankruptcy, laid out claims that Daimler fraudulently diverted $9 billion in assets immediately before divesting itself of its American arm, with the sale of Chrysler to Cerberus Capital Management.
In the latest action, Chrysler went back to U.S. Bankruptcy Court Judge Albert Gonzalez to seek an order requiring Daimler to continue providing diesel engines, steering columns and torque convertors used in some of the American company’s 2010 products. Without them, Chrysler asserted, it would be forced to halt production of some models.
While the carmaker did not specifically state which lines would be impacted, the parts appear to be in use on the current Jeep Grand Cherokee diesel. Chrysler also needs the engines for a variety of products it sells in diesel-focused Western Europe, including the Dodge Caliber, Jeep Patriot and Jeep Compass models it will show at the 2009 Frankfurt Motor Show, early next month.
“Daimler’s bad-faith conduct and contractual breaches threaten to derail” Chrysler’s post-bankruptcy plans and would “send devastating ripple effects through the automotive industry,” the U.S. maker alleges in its court filing.
A key issue in the latest battle is whether Chrysler should have to pay a higher price for the diesel engine and other parts because it is using fewer of them than was originally agreed to. So far this year, Chrysler’s U.S. sales are off by more than a third, though it is expected to show a modest improvement, for August, as a result of the just-concluded Cash-for-Clunkers program.
Chrysler emerged from bankruptcy on June 10, and the newly-reformed automaker is now under the control of Fiat, which has appointed its own CEO, Sergio Marchionne, as Chrysler chief executive. The U.S. carmaker is expected to undergo significant changes in its product line-up, over the coming years, as it begins to develop new models in cooperation with the Italian marque.
But in the near-term, Chrysler will remain dependent upon products developed during its unhappy marriage to Daimler, which was launched, in late 1998, as a “merger of equals.” After initially trying to live up to that mantra, the German side of the company quickly gained control of the new DaimlerChrysler. But as the U.S. side of the company’s fortunes faded, the marriage grew rocky and, in 2007, Daimler effectively paid Cerberus to take Chrysler off its hands.
In turn, Cerberus found it could not sustain what was left of Chrysler, agreeing to let it go bankrupt in order to win the federal bailout needed to keep the automaker in business.