There are growing signs of trouble in the US automotive plastic parts industry now that two key suppliers have gone into Chapter 11 bankruptcy protection in as many weeks.
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Just over a week ago, a supply disruption at Plastech Engineered Products – in both Chapter 11 and dispute with Chrysler – caused about a day’s loss of production at four of the automaker’s US assembly plants.
That was followed, last night, by news that Blue Water Plastics had filed for Chapter 11 reorganisation, marking the second time in less than two weeks that a large automotive plastics parts maker has entered Chapter 11, according to US based trade paper Automotive News’ website.
According to Automotive News, lawyers for Ford, General Motors and vehicle interiors specialist Johnson Controls yesterday (13 February) were in bankruptcy court to support Chrysler’s effort to retrieve tooling from Plastech.
A Chrysler executive reportedly testified in the court about the depth of the financial and operational troubles that have plagued Plastech for at least a year.
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By GlobalDataAccording to Automotive News, Chrysler’s director of interior procurement, Douglas Doran, said Plastech’s quality issues were far worse than the typical supplier and added that those quality issues – coupled with Plastech’s continued financial needs – led Chrysler to cancel its contracts.
Doran reportedly said Chrysler had monitored Plastech’s financial condition for over a year through a consulting firm which told the automaker that the supplier was having trouble paying suppliers and had violated agreements with its lenders.
Plastech, which filed for Chapter 11 protection on 1 February, is trying to protect the tooling that Chrysler wants and, last week, with Chrysler trying to sever its business, stopped supplying parts to the automaker, causing the shutdown, Automotive News said.
Plastech reportedly contends that if Chrysler removes its tooling, Ford, GM and Johnson Controls will follow, rendering the supplier unable to do business.
According to Automotive News, Doran said Chrysler has paid for about $US167m worth of tools and acknowledged that Plastech has an additional $13.4m of equipment that Chrysler has not paid for.
The paper noted that Chrysler had twice participated in bailout agreements with other customers over the past year, including in January when it contributed $10.7m to help bail out Plastech, yet, days after the January agreement was signed, Plastech contacted Chrysler again, saying it needed a third bailout package while, all the while, its production quality was degrading.
The hearing was expected to continue today, Automotive News said, adding that Blue Water Plastics had also filed for Chapter 11 as CEO Michael Lord cited ” serious issues in the plastics segment” of the auto parts industry.
The report said the company had listed more than $10m in debts in its 12 February filing in bankruptcy court in Detroit. It makes over $200m in annual sales and specialises in functional plastics, including air-handling systems.
Lord reportedly cited high development costs for future customer production (for which Blue Water won’t get paid till the customers start production) and doubled raw material costs among the reasons for going into Chapter 11.
He told Automotive News: “If you look at the industry, a huge portion of the industry is in distress, and there are elements that are very dysfunctional right now.”
Lord also told the trade paper that Blue Water is seeking approval for $30m in debtor-in-possession financing that would allow it to continue paying its bills and has been working closely with customers to keep operations running smoothly in the meantime.
Plastics supply problem shuts plants
