Wednesday, February 20, 2008

Chrysler can't move molds yet, judge says


Chrysler LLC will have to negotiate with Dearborn-based supplier Plastech Engineered Products Inc. to move its molds and dies out of the struggling supplier's plants.

A bankruptcy judge decided Tuesday that Chrysler cannot immediately move tooling out of Plastech's plants because of the protections that Chapter 11 bankruptcy offers struggling companies.

Filing for Chapter 11 offers "an opportunity, a temporary window, to negotiate with its customers, lenders and other constituents," U.S. Bankruptcy Judge Phillip Shefferly said in a 43-page ruling.

Chrysler declined to say what it plans to do next.

"We will continue to work with all parties to ensure that our plants continue to receive deliveries of parts," said Chrysler spokesman Kevin Frazier, who declined to comment further.

The dispute between Chrysler and Plastech arose after Chrysler canceled its contracts with Plastech, having refused a third round of additional financial assistance for the struggling plastics firm. Chrysler also said Plastech was not meeting the company's quality standards.

The same day Chrysler canceled the contracts, it won a court order to move tools Plastech used to make its parts out of Plastech plants.

But then, Plastech filed for Chapter 11 bankruptcy protection, which halted all lawsuits against the supplier.

Shefferly's decision enforces that protection against litigation.

Still, Shefferly, in his decision, said that the tools belong to Chrysler, and defended Chrysler against assertions made during hearings that the situation is a result of Chrysler's own actions to cancel its contracts with Plastech.

But the damages to Plastech if Chrysler were to move its tools would outweigh the damages to Chrysler, Shefferly wrote.

Shefferly wrote that he was convinced that moving the tools out of Plastech's plants would disrupt Plastech's ability to serve its other customers, and "therefore any prospect of an effective reorganization will be lost."

The decision, coming in the third week of Plastech's bankruptcy case, gives the supplier some breathing room to negotiate with creditors and move forward with a reorganization plan.

"We think it's the right decision," said Plastech general counsel Kelvin Scott. "We look forward to a continued working relationship with Chrysler."

At this point, Chrysler's options include appealing Shefferly's decision and continuing talks with Plastech on a long-term contract.

The decision keeps Chrysler from moving nearly $200 million in business with Plastech to other plastics suppliers.

Chrysler and Plastech last week reached a temporary deal that keeps Plastech's plants producing parts for Chrysler vehicles until Feb. 27 and avoids shutting down production at Chrysler's assembly plants.

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