Dana asks for court approval of agreements with GM, Toyota

By Reshmi Basu

New York, Sept. 14 - Dana Corp. requested court approval of settlement agreements with two of its largest customers, according to documents filed Friday with the U.S. Bankruptcy Court for the Southern District of New York.

As part of its restructuring efforts, Dana entered into negotiations with General Motors Corp. and Toyota Motors Engineering & Manufacturing North America, Inc. to improve the profitability of its supplier arrangements, which the company said were necessary for its reorganization efforts.

In addition, the company noted that while it was important to maintain the business relationships, it was also critical to improve the pricing terms under the arrangements.

Furthermore, the parties wanted to avoid litigation because of the potential costs and uncertainty associated with such actions.

Dana's annual sales to GM are about $800 million while its sales to Toyota Motor are about $400 million, the company said in the motions.

The agreement with GM settles a dispute over claims, including all of GM's asserted setoff claims.

Prior to Dana's bankruptcy filing, GM owed Dana $48 million, of which it paid $20 million. However, GM placed the remaining $28 million on administrative hold pending outstanding payables issues.

Under the agreement, all but $4.5 million has been properly offset or been paid off.

Also under the proposed settlement agreement with GM:

• Piece prices are increased for the component parts;

• Both parties will share any value analysis/ value engineering program savings; and

• The companies will provide each other with mutual releases.

Toyota pact

Meanwhile, under the agreement with Toyota, Dana said the proposed deal would improve the pricing terms for "technical, cost-based situations involving unprofitable production for Toyota."

In exchange, Dana will make certain cost reduction measures in connection with their production of parts for Toyota, the company said in the motion.

Under the settlement agreement with Toyota:

• Piece prices are increased for the component parts;

• Toyota can revise the deal if there is an "event of default," which includes the failure of Dana to achieve certain milestones in accordance with its bankruptcy case;

• Toyota will withdraw its claim against Dana, assuming that Dana will remain liable for all warranty claims in connection with parts supplied by them to Toyota; and

• Dana will release any claims against Toyota.

The hearing for both motions is scheduled for Oct. 3.

Dana, a Toledo, Ohio-based supplier of components, modules and systems to vehicle manufacturers and related aftermarkets, filed for bankruptcy on March 3, 2006 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 06-10354.

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