From Detroit Free Press
DETROIT — The legal dispute that brought five Chrysler LLC plants to a halt last week returns to court Wednesday.
Chrysler and Dearborn, MI-based supplier Plastech Engineered Products Inc. are to argue over whether Chrysler can take back molds and dies that Plastech uses to make parts for nearly all Chrysler’s vehicles.
It’s this dispute, Plastech says, that forced it to file for Chapter 11 protection on Feb. 1 – the same day it lost its business with Chrysler — and days before the firms reached a temporary deal on production.
Despite the unusually dramatic entrance into Chapter 11, Plastech’s financial problems are all too common, echoing those of other suppliers that have had to restructure under the weight of debt from acquisitions, rising material costs, pressure from customers to cut prices and shrinking production volumes.
Reorganizing companies typically use the bankruptcy process to hack away at debt. Plastech entered bankruptcy with nearly $500 million in debt, more than a third of its annual sales.
Plastech’s story started 20 years ago, when founder Julie Brown, formerly an engineer at Ford Motor Co., bought a plastics plant in Caro, MI.
Brown, born in Vietnam, went on to grow Plastech into the state’s largest woman-owned company — and one of the largest minority-owned businesses in the country.
The distinction of size came swiftly in 2004 when Plastech bought rival LDM Technologies — an acquisition that doubled Plastech’s revenue to nearly $1 billion and doubled the size of its workforce to about 7,000 people.
The company made four smaller acquisitions after that. Plastech, which made a profit in 2005, was buying weaker companies or their books of business to prove its value as a problem-solver to customers that were dealing with struggling suppliers. Those acquisitions also helped the company fill unused plant capacity.
While Plastech, known for keeping a tight control on costs, was careful not to take business at a loss, as Collins & Aikman had, Plastech made these acquisitions at a time when plastic prices pummeled parts suppliers.
The price for polypropylene, a staple for automotive plastic parts makers, has more than doubled since Hurricane Katrina hit in August 2005, rising from 30 cents to more than 65 cents a pound, said Jeff Mengel, a partner at Plante & Moran who leads the plastics industry team.
"I think they overextended themselves by acquisitions, and they leveraged themselves to the point where they were not flexible enough," said Jim McTevia, head of turnaround firm McTevia & Associates.
In 2006, Plastech lost $73 million. In February last year, it cut a short-term deal with customers to ensure it had enough money to operate. Plastech struck a second deal with customers last month. It was on the verge of reaching a third when Chrysler canceled its business with the financially struggling supplier.
During its 13-day-old bankruptcy case, Plastech has had to reach more short-term financing deals to keep operating.
The latest, which is to go before U.S. Bankruptcy Judge Phillip Shefferly Wednesday morning, includes an early sale of inventory to Plastech’s largest customer, Johnson Controls Inc., for $17.1 million, and would keep Plastech running for the next two weeks.
In the Chrysler dispute, the automaker is asking to be exempt from bankruptcy rules that halt lawsuits against a reorganizing company. Chrysler has sued to go into Plastech’s plants to take tools used to make parts for its vehicles and give those tools and business to other suppliers.
Chrysler was ready to do just that Feb. 1, when Plastech filed for bankruptcy court protection, stopping Chrysler from moving on a court order it received to take the tools.
Chrysler CEO Bob Nardelli said last week that the company will move its business.
"We have to make sure we’re getting the right value from our suppliers."
(c) 2008, Detroit Free Press. Distributed by Mclatchy-Tribune News Service.