Plastech Contract Dispute: A Threat To Chrysler's Stability

Anthony Fontanelle
February 5, 2008

Chrysler LLC is currently in critical condition after the cancellation of the contracts with auto parts supplier Plastech Engineered Products Inc. As such, the threat of plant idling and laid offs are hanging over the automaker’s head.

The cancellation of the contracts with Plastech, a bankrupt supplier, could halt production at all of the Chrysler's assembly plants. Additionally, it could result in layoffs for tens of thousands of workers.

The dispute isn’t as simple as halting the production of A1 Cardone Cardone Select Ignition Distributor. On Friday, Chrysler canceled $200 million in contracts with Plastech and demanded the return of the tooling, which Chrysler says it owns. As trucks were en route to Plastech to get the equipment, the Plastech filed for Chapter 11 bankruptcy protection therefore stopping the transfer.

As a result of the dispute, the Auburn Hills-based automaker idled production at four assembly plants Monday including a Sterling Heights factory that produces midsize sedans. Two Ontario factories are also expected to close late today.

According to the Detroit News, Chrysler has asked a judge to let the automaker remove its tooling, the dies, molds and other equipment used to make car parts, from Plastech's facilities. A hearing regarding the matter is set on the 13th of this month. A status hearing, meanwhile, is set for today.

In court documents, Chrysler said that without the tooling it can't move the work to a substitute supplier and would have to stop all production, which totals about 2.3 million vehicles per year, idling at least 14 factories.

Plastech, to note, manufactures approximately 500 parts for Chrysler that are used in its assembly plants in Canada, Europe, Mexico and the United States.

Plastech General Counsel Kelvin Scott said the supplier still wants to work with Chrysler, but can't now that the contracts are canceled. "We're working with all our other customers that didn't take the drastic action Chrysler took," he said. "They've brought this upon themselves."

The contract dispute is expected to cause threatening consequences. Closing a single assembly plant for a week costs about $100 million, said John Henke, auto analyst and president of Planning Perspectives Inc. He noted the Plastech dispute is a trial by fire for new Chrysler owners and management.

Henke said he's surprised Chrysler would cancel the Plastech contracts without ensuring the tooling would be returned or having an alternate supplier in place. "This mistake is costing them tens of millions of dollars a day," he concluded. "This could be a little payback from Plastech."

Source:  Amazines.com