Thursday, February 14, 2008

Plastech, Chrysler fight is complex

Automaker says money not sole reason for split

It was more than financial issues that led Chrysler LLC to cancel its contracts with Dearborn-based Plastech Engineered Products Inc., the Auburn Hills automaker said during a hearing in which it is arguing to take back tools Plastech uses to make parts for Chrysler vehicles.

In U.S. Bankruptcy Court in Detroit on Wednesday, lawyers for Chrysler called a purchasing director and a consultant hired to monitor Plastech to dig into the details of the legal dispute that shut five Chrysler plants last week, and Plastech says, drove the supplier to file for Chapter 11 bankruptcy protection.

Those details involve quality issues, financial troubles and whether Chrysler was abiding by several agreements that laid out the companies' relationship.

Testimony on Wednesday also revealed that Plastech was in talks that would have allowed its largest customer Johnson Controls Inc. to buy the supplier.

Plastech's quality was below the automaker's standards, said Douglas Doran, Chrysler's director of interior procurement, during testimony Wednesday.

Chrysler three times had to take the unusual step of bringing in a third party to review the parts Plastech made to ensure their quality, he said.

Plastech declined to comment on the quality issue.

But in opening statements, the company's attorney Gregg Galardi argued that Chrysler didn't properly terminate its contracts, and disputes the basis for Chrysler's decision.

Before Plastech's bankruptcy filing Feb. 1, there were talks led by Plastech's largest customer, Johnson Controls, about bailing out the struggling supplier through either a restructuring or by having the Milwaukee company buy Plastech, said Marcus Hudson, a consultant at BBK, the firm Chrysler hired to monitor Plastech.

That deal would have cost Chrysler more than $100 million over four years, Doran said.

One of Chrysler's key arguments is that a financing deal reached among Plastech and its largest customers last year says Chrysler can take back its tooling.

Plastech's largest customers -- General Motors Corp., Ford Motor Co. and Johnson Controls Inc. -- supported that part of Chrysler's argument. They say that they were also given the right to take back tooling under the agreement.

The hearing is slated to continue Thursday.

Plastech's filing comes at a difficult time for plastics suppliers in the auto industry, as suppliers are squeezed by rising material prices, decreasing production and pressures to cut prices.

On Tuesday, Blue Water Automotive Systems, which makes interior and exterior plastic parts, filed for Chapter 11 protection.

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