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Auto parts manufacturer BorgWarner risks running out of an important part after its supplier allegedly wreaked havoc on the supply chain by refusing to deliver unless BorgWarner agreed to certain price hikes, according to a newly filed federal lawsuit in North Carolina.

Michigan-based BorgWarner Turbo Systems LLC said in a complaint Friday that Modern Industries Inc. is holding hostage key parts for assembling turbochargers that BorgWarner supplies to equipment companies like John Deere and Caterpillar. This has caused its plant in Arden, North Carolina, to run out of inventory and forced at least one customer to experience line shutdowns.

BorgWarner alleges it will run out of the parts again next month unless the court intervenes.

Allegations of Supply Chain Disruptions

"BorgWarner cannot continue to repeatedly give in to Modern's extracontractual demands; these demands have caused repeated supply chain disruptions which result in irreparable harm to BorgWarner's business, its relationship with customers, and even consumers like users of John Deere equipment who are unable to operate their own businesses when critical parts are unavailable," BorgWarner said.

According to the complaint, Pennsylvania-based Modern Industries is BorgWarner's single supplier for turbine housing parts, which are used in turbocharger assemblies supplied to original equipment manufacturers. Under the supply agreement, BorgWarner and Modern Industries allegedly agreed to firm prices, with BorgWarner not liable for cost hikes incurred by Modern Industries unless otherwise negotiated.

BorgWarner vs Supplier: Price Hikes and Order Refusals

But in late 2022, BorgWarner said, Modern Industries began asking for price increases and minimum order quantities that weren't contemplated by the supply contract. BorgWarner allegedly refused and, when negotiations failed, Modern Industries stopped sending shipments of the parts toward the end of 2023, causing the Arden plant to run out of inventory, the lawsuit states.

According to BorgWarner, it tried to remedy the stalemate by offering to "spot buy" certain purchase orders at the price Modern Industries requested, but the supplier refused to play ball. It wasn't until BorgWarner filed a motion for a temporary restraining order and injunction in November 2023 that Modern Industries relented, the auto parts maker said. However, Modern Industries still hasn't shipped the full amount of parts requested under those "spot buy" orders, BorgWarner said.

Escalation of the Dispute

Things further escalated in May when Modern Industries said it wouldn't ship any new releases, the complaint states. BorgWarner said it demanded assurances that Modern Industries would follow through on the shipments, but Modern Industries "did not provide a substantive response for a full week."

The slowdown prevented BorgWarner from making turbochargers for John Deere, which John Deere allegedly needed to repair equipment in the field, according to the complaint. "These turbochargers were required for John Deere to repair tractors for consumers so they could continue operation of their businesses," BorgWarner said. "Every day that Modern refused to ship parts was another day that these consumers were unable to operate their businesses, causing widespread economic harm."

BorgWarner vs Supplier: Breach of Contract Claims

BorgWarner said it tried again in June to place a "spot buy" order relenting to Modern Industries' demands. But it said the supplier rebuffed them, offering only to ship the number of parts already manufactured. The suit alleges BorgWarner had to reduce the number of parts requested for Modern Industries to eventually accept the "spot buy" order. According to BorgWarner, Modern Industries has nonetheless since rejected its latest "spot buy" purchase order, meaning it will again run out of the much-needed part by Aug. 14.

The suit asserts claims for breach of contract and declaratory judgment, in which BorgWarner is asking to continue receiving parts from Modern Industries at the previously agreed-upon price.

Legal and Business Implications

"The implications of this disagreement between BorgWarner and Modern are significant, as Modern has already ceased shipments of parts to BorgWarner, the consequence of which will be a shutdown of BorgWarner's production of turbocharger assemblies as well as a shutdown of BorgWarner's customers' production lines," the complaint states.

Counsel for BorgWarner and a representative from Modern Industries did not immediately respond Monday to requests for comment. BorgWarner is represented by Alexandra J. Hirsch and Marc C. Tucker of Fox Rothschild LLP and Katherine L. Pullen and Ashley E. Racette of Warner Norcross + Judd LLP. Counsel information for the defendant wasn't immediately available on Monday.