Tuesday, February 5, 2008

Chrysler sues to get tooling from bankrupt supplier


Chrysler LLC production could come to a near halt by the end of this week if it can't resolve its dispute with auto supplier Plastech Engineered Products Inc. over tools used to make parts for nearly all Chrysler, Dodge and Jeep vehicles.

Chrysler, which says it idled four plants and 10,500 workers on Monday, cancelled its contracts with the Dearborn-based supplier on Friday and has sued the supplier for thousands of molds and dies used to make some 500 parts for its vehicles.That move, Plastech says, forced the supplier to file for Chapter 11 bankruptcy protection the same day, after years of financial problems, in large part because of the rising price of oil, the key ingredient in its plastic parts.

The action by Chrysler, controlled by private equity firm Cerberus Capital Management since last summer, is a sign that the automaker is not going to prop up financially distressed suppliers, said Erich Merkle, auto analyst with Grand Rapids-based IRN Inc.

"Cerberus is coming into it and saying, 'You know what, this isn't they way business should be done.'"

Both companies say they are fighting for their survival.

Without Plastech's tools, Chrysler said its production is at risk. This week alone, the situation stands to cost Chrysler $225 million, said Chrysler attorney Michael Hammer during a court hearing today.

But to give back those tools, Plastech says, would disrupt production for other customers and could throw the company's future into question.

"We will lose the business if they just come in and rip the tools out," said Gregg Galardi, an attorney for Plastech.

Chrysler had teams ready at Plastech plants to take back the tools Friday night, after winning a court order to do so. But the company had to stand down after the bankruptcy filing, which protects Plastech from litigation while it reorganizes.

Chrysler has asked for an exception to that rule.

U.S. Bankruptcy Judge Philip Shefferly encouraged both sides to continue talks and reconvene Tuesday. A formal hearing on the matter is slated for Feb. 13.

Today, Chrysler indefinitely shut down assembly plants in Sterling Heights; Newark, Del.; Toledo; and Belvidere, Ill.

Those idlings affected about 10,500 workers, said Chrysler spokeswoman Michele Tinson.

Tinson said workers on the second shift at its Toledo machining plant were sent home for the week. Its transmission plant in Kokomo, Ind. will idle its second shift. At other plants, the company has asked for second shift volunteers to go home.

But in court Hammer said four more plants were to be shut down Monday night.

Plastech's general counsel, Kelvin Scott, pointed out that the company continues to supply parts to its other customers, including General Motors Corp. and Ford Motor Co.

Plastech said Chrysler abruptly cancelled millions of dollars in business one day after Plastech had all but negotiated an agreement with customers, including Chrysler, to help keep Plastech afloat.

Twice in the last two years, Plastech's largest customers had made agreements to accelerate payments of about $86 million, and additional financial help.

In court papers, Plastech said Chrysler had sent letters in mid-January saying the supplier breached the contract between the two companies.

In court papers, Plastech said, on Thursday night a deal was nearly complete.

The following day, Chrysler hand-delivered a one-paragraph letter to Plastech CEO Julie Brown ending its business with the company and asking the company to make the tooling available, and then sought a court order for the machinery.

"When you have customer relationships you usually talk about these things. They did it without even talking to us," Scott said.

The lost production won't hurt dealers for a while. Of the eight models affected on Monday, only two tend to sell in less than the industry average of 60 days of vehicles.

Plastech's bankruptcy filing caps off two tumultuous years for the auto supplier.

In 2006, the private company posted losses of $73 million on sales of more than $1 billion, nearly tripling its 2005 losses. Plastech employs more than 7,700 employees in 35 plants and its headquarters.

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