Chrysler closes plants in dispute with supplier
Mon Feb 4, 2008
By Ben Klayman and Nick Carey
DETROIT (Reuters) - Chrysler has closed four assembly plants and may be forced to shutter the rest of its global assembly operations within a short time due to a dispute with supplier Plastech Engineered Products Inc, which filed for bankruptcy court protection on Friday.
The dispute has so far not affected Plastech's other customers, including General Motors, Ford and Toyota.
Chrysler, which terminated all its contracts with Plastech on Friday due to the supplier's "ongoing financial struggles," said in documents filed with the U.S. Bankruptcy Court in the Eastern District of Michigan that it may be forced to quickly close 12 assembly plants around the world because the supplier is no longer shipping parts to the Chrysler plants.
The U.S. automaker's plants operate on a "just-in-time" basis, where parts are shipped as needed so any disruption would be immediately felt.
"Even a short term interruption ... will inevitably lead to the shutdown of more production lines at Chrysler," the automaker said in its objection filed on Saturday.
The closed Chrysler plants are in Rockford, Illinois; Newark, Delaware; Sterling Heights, Michigan, and Toledo, Ohio. The automaker also said its Toledo supplier park has eliminated a work shift.
The Plastech parts are also used in various Chrysler engine plants and international facilities where vehicle kits are shipped for final assembly, according to court documents.
Chrysler has asked the court for "immediate relief" to allow it to take its tooling equipment from the Plastech plants so it can be shipped to another supplier.
Plastech, a privately held minority-owned supplier based in Dearborn, Michigan, provides Chrysler with hundreds of parts, including door panels, floor consoles and engine covers, that are used in the assembly of almost all of Chrysler's vehicles -- almost 2.3 million per year.
Plastech, which was founded in 1988, has 35 facilities and 7,700 employees in the United States and Canada.
Chrysler and "various other customers" of Plastech provided the struggling supplier with $46 million so it could continue to supply parts, according to court documents. Chrysler said it kicked in $6.9 million of the total.
That group included GM and Ford, both of which said on Monday they were still receiving parts from Plastech and production had not been affected.
"We're working with Plastech to make sure that we have continuity of parts and components to keep our factories operating," Ford spokesman Todd Nissen said. "We've not had any production disruptions and don't expect any."
Plastech makes a number of different parts for Ford, its largest customer, including plastic interior and exterior parts for such vehicles as the Ford F-150 pickup truck and the Ford Edge crossover vehicle. Plastech makes various parts for GM, including door handles and bumpers.
Other customers include Toyota and Johnson Controls. Toyota said it had not been affected and Johnson Controls was not immediately available for comment.
Along with that initial payment from the customers, Chrysler said Plastech agreed all tooling would belong to the respective customers and they would have the right to take possession of the equipment at any time without payment, according to court documents.
However, Plastech came back to Chrysler and said it needed more money so Chrysler and the other customers entered into a second agreement on January 22, under which Chrysler accelerated $10.7 million in payments to Plastech under existing contracts, according to court documents. In total, the customer group gave Plastech $40 million in accelerated payments.
Chrysler decided to take possession of the tooling, getting a Wayne County Circuit Court to give it a temporary restraining order that allowed the automaker to send "a team of trucks" on Friday to the supplier's plants, according to court documents. However, Plastech filed for bankruptcy to prevent that.
Plastech was "clearly using the automatic stay as a sword ... assumingly in hopes of extracting additional financial accommodations," Chrysler said in court documents.
Chrysler said Plastech had caused "tremendous jeopardy" by stopping production of parts for the automaker and refusing to release the tooling equipment so Chrysler can have other suppliers build the parts, according to court documents.
Plastech said its liquidity had been reduced due to the downturn in the domestic auto market and rising commodity costs, according to court documents.
It had already hired Conway, MacKenzie & Dunleavy as financial advisers and Lazard Freres & Co LLC as investment bankers to explore options, including the sale of some or all of its business, according to court documents.
