Waukesha-based company faces lawsuit for allegedly not paying suppliers for excess inventory

Generac has seen mounting legal troubles in recent years, lower sales to start 2023

Generac Power Systems, Inc
Generac Power Systems, Inc., in Whitewater, Wis. Nam Y. Huh/AP

A Wisconsin generator manufacturer is facing two lawsuits for allegedly refusing to pay suppliers, as the company has faced mounting legal troubles in recent years and drops in its stock price.

Spartronics, a manufacturer that helps connect businesses with other suppliers, filed lawsuits against Waukesha-based Generac earlier this month in state and federal courts in Pennsylvania.

Generac partnered with Spartronics to secure raw materials, custom items and other parts from suppliers around the world, according to a source familiar with the situation who spoke to Wisconsin Public Radio on background.

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In September 2022, the Waukesha company allegedly went back on its promise to purchase millions of dollars worth of materials Spartronics procured on its behalf, according to Spartronics’ lawsuit filed in the U.S. District Court for the Middle District of Pennsylvania.

“Spartronics will not sit by idly while Generac refuses to pay for custom, non-reusable and other materials that they demanded be produced,” said Christopher Clark, an attorney for Spartronics, in a statement.

Spartronics claims Generac ordered more materials than it needed due to inflated sales forecasts. When those forecasts didn’t pan out, Spartronics says Generac refused to pay for the excess inventory.

The federal complaint says Spartronics now has roughly $44 million worth of open inventory, for which “Generac has refused to pay, despite it being Generac’s obligation to do so.” That left Spartronics in hot water with its sub-suppliers, the company said.

“Generac’s actions threaten roughly $450 million in projected Spartronics revenue and have caused immediate and devastating harm to Spartronics’ existing commercial relationships, credibility, and goodwill,” the federal complaint said.

But a spokesperson for Generac said the company “strongly disputes” those allegations.

“Spartronics misrepresents several issues in their lawsuits and ignores their own accountability,” the Waukesha company said in a statement. “We intend to vigorously defend the matter. We cannot comment further since this is pending litigation.”

Generac has recently faced other legal challenges

Last year, North Carolina-based Pink Energy sued Generac over a faulty component that it says could melt and cause fires. Pink Energy has filed for bankruptcy and claims Generac forced it to lay off 500 employees.

The component in question also fueled a class action lawsuit in April from two North Carolina residents. The suit says Generac’s fix for the melting and overheating problem doesn’t work.

Last month, Generac agreed to a $15.8 million settlement with the U.S. Consumer Product Safety Commission for failing to immediately report 32 models of defective portable generators that posed safety risks to customers. According to the commission there were five reports of consumers suffering finger amputations while transporting generators.

In a statement, Generac said it takes product safety seriously, and fully cooperated with the U.S. Consumer Product Safety Commission.

“Generac entered this settlement agreement to put this matter behind us and avoid the cost and distraction of any further, protracted legal proceedings,” the statement read. “Generac’s willingness to enter into the settlement agreement does not constitute an admission to the (Consumer Product Safety Commission)’s charges.”

Generac started the year with lower sales, stock price has fallen since 2021

In 2020, 2021 and 2022, Generac set new net sales records. Its net sales in 2022 hit $4.56 billion, surpassing $3.74 billion in 2021.

Those sales were fueled, in large part, by customers buying generators in response to severe weather causing power outages.

“Demand for our home standby products tends to be driven more by power outages, rather than overall macroeconomic conditions,” said York Ragen, the company’s CFO, during a May earnings call.

But the company says sales slowed toward the end of last year and were down to start this year. Net sales were down 2 percent in the fourth quarter of 2022 compared to the same period in 2021. In the first quarter of 2023, net sales decreased 22 percent compared to the first part of 2022. Generac also ended 2022 with a net income that was $150 million lower than it had in 2021.

Generac’s stock has also significantly decreased since it peaked in late 2021 around $500 per share. Its stock price closed last Friday at $119.42 per share.

Sales could pick up as the year goes on. Baseline power outage activity in the United States was at its highest level for a first quarter since the company began tracking outages in 2010, said CEO Aaron Jagdfeld at an earnings call last month.

“For historical perspective, first-quarter home consultations are more than four times higher than the comparable period in 2019, supporting our belief that the home standby generator category has reached a new and higher baseline level of demand,” he said.