FCA sues auto supplier over breach of contract, faces $100M loss

Fiat Chrysler Automobiles NV is suing a Canadian auto supplier in federal court over an alleged breach of contract because it cannot provide enough engine blocks needed to build popular Jeep SUVs, Ram trucks and Chrysler minivans — a decision the automaker says could cost it more than $100 million.

Martinrea International Inc. “improperly and unilaterally” reallocated one of its engine-block manufacturing machines in Mexico to another customer, according to FCA. The Italian American automaker says the change will leave it with “irreparable harm” — thousands of units short of the critical piece for which Martinrea is the only external supplier and is needed to build the vehicles that boosted FCA to record-high profits in North America last quarter.

Fiat Chrysler Automobiles NV says production of the Jeep Wrangler and other popular vehicles could be affected after Martinrea International Inc. reallocated one of its engine-block machines in Mexico for another customer.

“Martinrea’s decision will imminently cause a shortfall in parts from which FCA US will not be able to recover within any reasonable length of time, resulting in extraordinary monetary damages that could quickly eclipse $100,000,000.00 as well as plant shutdowns, layoffs, and reputational harm,” FCA’s attorney Moheeb Murray said in the lawsuit that moved Monday from Oakland County’s Circuit Court to the federal U.S. District Court for the Eastern District of Michigan.

The auto supplier agreed to manufacture 13,021 engine blocks weekly for FCA on its 3,500-ton aluminum die casting machines at its facility in Quereataro, Mexico, according to the automaker. After reallocating one of the machines for another customer, Martinrea is promising a maximum of only 6,247 engine blocks per week, FCA says.

“The insufficient supply will inevitably require FCA US to shut down production of six top-selling vehicle platforms in at least six of its plants,” Murray wrote. “Each hour Martinrea fails to meet fully FCA US’s releases is already resulting in monetary damages to FCA US of thousands of dollars, plus other incidental and consequential damages. And this amount could continue to climb to hundreds of thousands of dollars per hour.”

Martinrea did not immediately respond to request for comment. The supplier, however, blamed Fiat Chrysler for the part shortage in a Dec. 11 letter sent in reply to FCA that was included in the case.

The automaker in October insourced approximately 30% of the casting production it says it needs at a plant in Kokomo, Indiana, Rob Fairchild, the supplier’s executive vice president of sales and engineering, wrote in the letter. Fiat Chrysler in January also authorized Martinrea to refurbish six instead of eight dies that left the supplier without sufficient tooling, he added.