SAGINAW, Mich. (Dow Jones)--Court documents show that Delphi Corp. (DPH) fears a stop-shipment from its steel-parts suppliers could result in losses totaling $ 10 million a day.
Several of Delphi's plants could be idled in as soon as one day if the shipments are halted. That could in turn force General Motors Corp. (GM) plants to idle in as soon as two days. Supply shutdowns also could affect Nissan Motor Co. (NSANY) as well as GM's Opel and Vauxhall units.
Delphi was awarded a temporary restraining order against two of its suppliers - Republic Engineered Products LLC and NSS Technologies - on Feb. 20 in Saginaw County Circuit Court. The suppliers had threatened to stop shipping steel parts if Delphi would not agree to pay more for the parts. Steel prices have been escalating since December, pushing the price tags as much as 30% higher.
The temporary restraining order expires at the end of March.
Steel prices have skyrocketed since December, when many suppliers received notice from their steel distributors informing them of the surcharges. Ana Lopes, director of government relations at the Motor and Equipment Manufacturers Association, said the surcharges started out at around $20 to $60 a ton, depending on the product type. Now, the surcharges have reached $80 to $130, she said.
NSS and Republic are Delphi's sole suppliers for several key items, the court documents said. NSS makes parts used in steering gear assemblies, which are then used by GM. Republic manufactures 50 parts for Delphi, like hydraulic pump assemblies and service steering pumps. Delphi said in the court documents that it keeps as little as two days' supply on hand. Shipments are made nearly every day, and sometimes more than once a day, the company said.
"Disruption of their supply will cripple or completely shut down Delphi's production in one or two days," the filing reads, causing "catastrophic losses totaling millions of dollars per day to Delphi and its customers."
The battle between the companies began in early January, with a letter from C.T. Cochran, vice president of sales for Republic. The letter stated that it was enforcing its policy of passing along surcharge prices to its customers - and those who wouldn't pay would see their shipments stop immediately.
"Regrettably, this is a period when our key raw materials have increased to all-time high levels, leaving us no alternative but to implement these surcharges," he wrote.
Delphi's original contracts with the firm stated that Delphi won't accept price increases on account of "any increases in seller's labor, material, overhead and any other costs."
NSS, which provides Pittman Shafts to Delphi, originally contracted in 1999 to sell the parts for $1.63 per piece, and also agreed to a 2% annual price reduction over the life of the contract. The company makes about 1.8 million of the parts a year, which are then used in Chevy Tahoe, Silverado and Denali trucks. The lawsuit did not say how much more NSS was hoping Delphi would pay for the parts.
The contracts with NSS and Republic end Dec. 31.
-By Sharon Silke Carty, Dow Jones Newswires; 313-226-1249 |
