On Wednesday of this week, Dana Holding Corp., which has been providing driveline parts to Chrysler for more than 70 years, has filed a lawsuit against the automaker, alleging the partnership is costing the supplier tens of millions of dollars per year. If the U.S. Bankruptcy Court enforces the agreement between the two, Dana will be able to stop supplying Chrysler.

The agreement that would allow the two companies to stop working together was made when Dana was going through Chapter 11 reorganization, from which it emerged on February 1 of this year. The court documents say Dana will stop supplying parts to Chrysler by January 1, 2009, as Chrysler does not want to cover the costs of rising raw materials. The steel price increases is what spurred Dana’s decision, although there is more to it.

Dana’s initial estimates of steel prices have tripled to $850 per ton for 2008, and the supplier posted a $140 million loss for the second quarter on Friday. Dana is seeking to pass along all of the added cost to Chrysler and its other clients, but has recovered just 48 percent of the total $242 million loss in profits this fiscal year, according to Automotive News reports.

But the higher cost of steel prices isn’t the only reason there is disagreement between Dana and Chrysler.

“The rise in steel costs exacerbates contracts that already weren’t very healthy for us,” said Dana spokesman Chuck Hartlage. “If steel hadn’t hit $850, I think the disagreement would still be there.”
Dana makes driveline systems for the Jeep Wrangler, Liberty and some Grand Cherokees as well as the Dodge Nitro, Viper vehicles and some light- and medium-duty versions of the Dodge Ram. Still, Chrysler accounts for only 3 percent of Dana’s revenue in 2008, while GM and Ford account for 25 percent of sales.

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