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Getrag’s attempt to obtain funding from the German government and a requirement by its Export Bank are what led to the lawsuit Chrysler LLC filed against its partner in the Tipton County transmission plant.

Chrysler has accused Getrag and Getrag Transmission Manufacturing LLC (GG LLC), a wholly owned subsidiary, of breach of contract and fraudulent misrepresentation.

The lawsuit is based on three charges.

1) Getrag and GG LLC only sought foreign financing that would require an export bank guarantee with stipulations required by the government that are “burdensome and not customary conditions of financing.”

2) GG LLC breached the agreement by only seeking financing that was subject to the export bank guarantee. It also breached a provision of that agreement that no government approval be involved.

3) Both defendants fraudulently misrepresented themselves as Chrysler says it repeatedly stated its concerns about their ability to obtain financing in the six months preceding a financing agreement.

The lawsuit has been assigned to Judge Raelee Chabot of the Oakland County Circuit Court, but no court dates have been set.

While Chrysler has filed the lawsuit, it also wants a resolution.

“We’d like to see the project go forward with good faith negotiations,” Chrysler spokesman Dave Elshoff said.

Randy Cyman, human resources director at the Tipton plant, said Getrag had no comment on the lawsuit, but its headquarters in Germany would issue a statement today.

“Right now, it’s a fact that the lawsuit has been filed, and I can’t comment on anything,” he said. “We’re still optimistic things can get worked out.”

Equipment and machinery delivery to the plant is expected to begin in the next couple of weeks, he said.

In February 2007, a memorandum of understanding was reached for the joint development of the Tipton plant to build dual clutch transmissions, which would be purchased by Chrysler. A price for the transmissions was included, which was not to be exceeded in future agreements.

The reason for the original understanding was to allow Getrag to fund “project-related expenses” before transaction agreements were reached in order for the projected production date to be met.

If the project didn’t continue, Chrysler agreed to reimburse Getrag for expenses which Chrysler authorized in writing. It also stated other expenses would be borne by the company incurring them.

That agreement was to remain in effect through July 31, 2007, or until Chrysler and Getrag reached definitive contracts. Those contracts, however, couldn’t be negotiated because Getrag failed to arrange financing by that date, Chrysler said. It also alleges Getrag wouldn’t enter into an agreement using the pricing agreed on in the original understanding.

The memorandum was extended so the groups could negotiate prices and Getrag could pursue financing. Chrysler didn’t authorize Getrag to incur any project expenses after September 2007.

In August 2007, Getrag told Chrysler that it had dealt with 20 banks in Germany and the United States and the feedback was “quite positive.” Although no debt financing proposal was presented to Chrysler, Getrag continued to seek an increase in the price of transmissions due to “a claim of increased costs for production.”

It also continued to ask Chrysler to authorize more payments for expenses it had incurred after September. Chrysler refused based on the price dispute and Getrag’s lack of financing.

While they negotiated prices, both parties agreed to extend the memorandum, but on Dec. 21, Getrag halted construction in Tipton “until Chrysler agreed to reimburse” Getrag’s costs after Oct. 1, 2007.

Chrysler president Thomas LaSorda met with Getrag managing director Tobias Hagenmeyer on Jan. 16 to discuss the dispute. It was resolved with Getrag providing a “comfort letter” to Chrysler which stated its efforts to obtain such financing in exchange for Chrysler no longer requiring financing be obtained before it would enter into a transmission supply agreement.

Throughout February and early March, Chrysler said, Getrag “repeatedly assured Chrysler that it would have no difficulty arranging debt financing” with the only sticking point being the interest rate for the financing.

Definitive transaction agreements were reached on March 11, which included a financing options agreement and transmission supply agreement.

Getrag’s obligations under those agreements included obtaining financing up to $300 million.

Chrysler said it had no choice but to believe that Getrag would obtain the funding because it refused to provide term sheets or other financing effort information or allow Chrysler to talk with the banks.

“According to Getrag, the project had to appear to be a transaction with a German company and Chrysler’s direct involvement might interfere with GG LLC’s ability to secure the debt financing,” the lawsuit sates.

In turn, Chrysler agreed to the cost increases and to pay Getrag’s past expenses and certain project expenses through July “even if the project were not completed.”

The transmission supply agreement reiterated those same terms, along with the additional term by GG LLC that there be no government approval in the agreement.

However, Chrysler alleges, Getrag and GG LLC knew debt financing could not be obtained on time. Furthermore, they wouldn’t be able to obtain financing in any time frame “unless Chrysler was willing to assume substantial obligations” beyond those in the agreements.

In April, Getrag told Chrysler it was “seeking an export credit guarantee of all or part of the debt financing” from the German government through its export bank (Euler Hermes). In June, Chrysler says it learned an export bank guarantee was a condition to Getrag obtaining the debt financing.

The guarantee was required in case of Chrysler going into bankruptcy. That guarantee would have required Chrysler to establish an escrow account of more than $300 million to pay for machinery and equipment costs that were Chrysler’s responsibility.

Chrysler says that would limit its right to step in for reasons such as Getrag’s failure or refusal to perform contractual obligations to the automaker, as well as being inconsistent with the terms of the earlier financing agreement.

Chrysler says it offered a compromise by allowing Getrag to own the equipment at no cost to the transmission company, but Getrag refused.

Chrysler says Getrag and GG LLC took steps to keep knowledge of the guarantee from Chrysler “long before” the financing and supply agreements were signed.

Chrysler called the conditions of the Export Bank financing “unique” and stating their requirement was a failure on Getrag’s behalf to provide “firm commitment” required in the original financing agreement.

The misrepresentations by Getrag and GG LLC, Chrysler says it has lost investments, has no alternative source of dual clutch transmissions and will suffer losses in sales because it can’t deliver vehicles that include the increased fuel efficiency provided by those transmissions.

John Dempsey may be contacted at (765) 854-6739 or by e-mail at john.dempsey@kokomotribune.com