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Chrysler, Plastech reach agreement

From Automotive News:

Chrysler, Plastech reach agreement
Creditors want to see terms of the deal
Ryan Beene
and Rhoda Miel
Automotive News
February 5, 2008 - 12:03 pm ET
UPDATED: 2/5/08 2:49 p.m. EST

DETROIT -- Chrysler LLC and bankrupt supplier Plastech Engineered Products Inc. have reached an interim agreement to resolve a parts dispute between the two companies, an attorney representing the supplier said this morning. The pact will allow the automaker to resume production at four idled plants and avoid shutdown of all its assembly operations.

Gregg Galardi, a lawyer for Plastech, told U.S. Bankruptcy Judge Phillip Shefferly that the two companies had reached a deal that will run through Feb. 15.

Chrysler shut four plants Monday, Feb. 4, after Plastech stopped shipping parts after filing for Chapter 11 protection on Friday, Feb. 1. Chrysler's plants operate on a "just-in-time" basis, under which parts are shipped as needed, so any disruption would be immediately felt.

Galardi said Plastech would resume production of Chrysler parts during the second or third shift at the company's plants today.

The automaker had asked the court to allow it to seize tooling equipment it said it owns. Plastech had said ownership of the equipment was in question and that removing it would affect other customers.

Chrysler trying to move business
Chrysler has told multiple suppliers to be prepared to take on extra business to lay the groundwork for moving some parts from Plastech, but that work cannot be done overnight, says Jeff Mengel, a partner with suburban Detroit consulting firm Plante & Moran PLLC.

" Just think of all the logistics, of building the parts banks, of getting your parts (tested)," he said. " There's the processing, getting tooling validated, getting presses validated. You've got to get the material and get the material validated. Even moving a tool from one press to another in the same facility requires a lot of work."

Some parts, such as simple exterior trim, can be easy to transfer. Other parts like painted exterior components requiring high gloss looks with an exact color match add another degree of difficulty.

So far, Chrysler has been looking at shifting work to suppliers already in its network. Mengel said he expects any re-sourced Plastech work will go to multiple molders, than any one company.

The showdown accentuates an aspect of Plastech that its competitors have known for a long time, Mengel said.

" Plastech has a reputation in the industry for being tough, especially for toolmakers," he said.

While the firm has stressed its ability to deliver good parts at low cost to its customers, molders and its suppliers have talked privately for years about the difficulty of doing business with Plastech, which is run by founder and CEO Julie Brown.

" When it comes to brinkmanship negotiations, no one is better than Plastech, especially when it's dealing with its competitors," Mengel said.

Secret deal?
Frank Merola, an attorney who represents Plastech's second-lien noteholders, took issue with the decision to withhold the terms of the agreement today and aimed his criticism at Chrysler.

" We have to remain cognizant that Chrysler caused this bankruptcy and the debtor is currently a debtor in possession," said Merola, a shareholder of Stutman, Treister & Glatt in Los Angeles. " The debtor and Chrysler cannot have a secret, undisclosed deal...everyone is entitled to see and vet what that deal is."

Merola said Plastech's second lien creditors hold about $100 million of Plastech's debt.

" At this point, regardless of what the debtor agrees on for an interim basis, we are of a position that the debtor is not in a position to grant Chrysler relief on behalf of its estate for anything, and we intend to hold Chrysler fully responsible," Merola said.

Said Mike Hammer, attorney for Chrysler, " We vehemently disagree with the contention that we caused this bankruptcy."
Shefferly took no official position on Merola's statement, but encouraged Chrysler and Plastech to share the agreement.

" I have not been asked to approve any specific agreements," Shefferly said. " I am certainly pleased that the parties have themselves reached what they believe is an agreementů.Now, Mr. Hammer and Mr. Galardi, you have to determine who is affected by any agreement you reach and ensure that they have an adequate opportunity to participate."

Plastech, based in suburban Detroit, owns more than 35 plants in North America and generated $1.4 billion in sales last year. According to court documents, the company employs 7,700 people, 70 percent of them union members.
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