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Chrysler cuts off Plastech
From the Detroit Insider:
Thursday, February 7, 2008
Chrysler cuts off Plastech
Automaker is part of a short-term parts deal, but cancels longer contract with the bankrupt supplier.
Bryce G. Hoffman / The Detroit News
Plastech Engineered Products Inc. reached an agreement with creditors and key customers Wednesday that will allow it to keep its plants open at least through Monday, but Chrysler LLC Chairman and CEO Bob Nardelli says his company is finished with the bankrupt supplier, putting its future in doubt.
"When a supplier comes to you and says they are no longer financially viable, we have an obligation to respond," he told reporters at the Chicago Auto Show. "It's not adversarial. We're not a predator."
During a hearing on the interim financing plan in U.S. Bankruptcy Court in Detroit Wednesday, it was revealed that Plastech was on the verge of concluding a bailout agreement Friday with lenders and customers, including General Motors Corp. and Ford Motor Co. Chrysler was part of those discussions, and was expected to be part of the bailout, but instead surprised everyone by cancelling its contracts and demanding the return of tooling used to produce its components.
Nardelli reiterated those demands Wednesday even as he defended Chrysler's surprise move, which has other car companies worrying that the Auburn Hills automaker may disrupt the precarious balance that now exists between them and their suppliers. He said Chrysler understands this is going to be a challenging year for suppliers and will continue to work with financially distressed vendors on a case-by-case basis.
"Each one is different -- some have unique, proprietary products. Some bring innovations," he said. "We look at quality, we look at value, we look at innovation, we look at delivery and we look at financial strength. When one of those gauges reads empty, we have no option other than to respond."
According to attorneys representing Plastech and key financers like Goldman Sachs, it was Chrysler's response that created the crisis in the first place.
They said Plastech was about to conclude a new agreement with its customer and lenders Friday that would have allowed the company to remain solvent and continue filling orders.
Customers, including GM and Ford, had agreed to provide Plastech with new price guarantees and a short-term cash injection, while its lenders were putting together a longer-term financing deal to provide the money it needed to restructure.
"All that went out the window when Chrysler cancelled its contracts and forced them to file bankruptcy," said Rick Levy, attorney for Goldman Sachs.
Plastech responded by halting shipments to Chrysler factories, forcing the automaker to shut down five plants Monday. They reopened late Tuesday after Chrysler and Plastech reached a temporary accord.
Short short-term plan in place
On Wednesday, Levy and attorneys representing other Plastech creditors "grudgingly" agreed to a short-term financing plan that should keep Plastech running through Monday.
Without it, Plastech said it would have had to suspend all of its operations by the end of the day.
"As we sit here today, we have no cash," Plastech attorney Gregg Galardi told Judge Phillip Shefferly during Wednesday's court hearing.
As part of the interim financing deal, Chrysler did agree to make some early payments to the supplier.
But it is unclear whether Plastech can survive without Chrysler's business. And that makes other customers, not to mention Plastech's lenders, nervous -- particularly those that rely on its parts for their own cars and trucks.
"There's one thing we all agree: This company should not remain in bankruptcy for any length of time," Galardi said. "It could collapse under its own weight."