Chrysler Covets Plastech Equipment

Anthony Fontanelle
February 14, 2008

Chrysler LLC is asking the court to lift stay order it has issued to preclude it from repossessing equipment held by Plastech Engineered Products Inc., an auto parts supplier.

The supplier repeated financial and quality issues forced the automaker to rescind its acquisition orders with the distressed supplier, and gives the automaker the right to reposes its tooling this week, Chrysler attorneys told U.S. Bankruptcy Judge Phillip Shefferly Wednesday.

The Auburn Hills automaker is asking the bankruptcy court to lift the order so it can turn over the work to another supplier. The work covered by the pact between companies includes both interior and exterior plastic components used in every Chrysler vehicle.

Plastech attorneys, meanwhile, said the automaker does not have the right to take the tooling because its Feb. 1 bankruptcy filing protects it from having to surrender those assets. Attorneys for Plastech and its creditors noted, “Without Chrysler's business Plastech would fail to continue as a business.”

"Other major customers still want to move forward," said Frank Merola, an attorney representing Plastech's second-lien note holders. "Lifting this stay sentences this case to liquidation."

What would be the greater impact of the dispute in the auto industry as a whole? If Plastech stops its operations, it would mean paralyzing General Motors Corp., Ford Motor Co. and Johnson Controls Inc. Why? This is because the supplier provides key components for the automakers major products such as the Ford F-150 pickup and GM's full size crossovers.

GM and Ford said Wednesday they support Chrysler's rights to the tools, though not necessarily their efforts to reclaim them. They operate under similar contracts, but continue to order parts from Plastech, according to Detroit News.

Chrysler canceled its purchase orders on Feb. 1. The automaker famed for the manufacture of durable Jeep doors sought to take the tooling from Plastech's plants. To avoid the situation, Plastech filed for bankruptcy. Due to undelivered Plastech parts, five Chrysler plants endured a one-day shutdown.

Douglas Doran, Chrysler director of interior purchasing, said that consultants BBK Ltd.'s advice that Plastech was financially insolvent was the primary reason Chrysler sought to end its relationship with the company. He added the Auburn Hills automaker on three occasions sent a third-party to work with Plastech on quality issues and cited Plastech on some 450 specific quality issues in 2007 alone.

What’s more, it was revealed that the automaker rejected a pre-bankruptcy plan. The plan, which require Chrysler to spend $100 million over the next four years, will allow Johnson Controls Inc. "This situation was a meltdown for us," Doran admitted.

Source:  Amazines.com