Chrysler: Back in Business For Now After Deal with Plastech
February 06, 2008

Production at Chrysler assembly plants is largely returning to normal now that the automaker has reached a tentative agreement with supplier Plastech Engineered Products Inc.

Chrysler cut production at five assembly plants Feb. 4 due to parts shortages of plastic interior parts, the result of the automaker canceling contracts with Plastech, which filed for Chapter 11 bankruptcy in Detroit on Feb. 1.

The dispute between Chrysler and Plastech illustrates the changing of the guard at the automaker as well as the continued poor health of the automotive-supply base.

Plastech is only one of several struggling automotive suppliers in the United States. A number have filed for bankruptcy in recent years; some have emerged and others have disappeared. Still more could file for bankruptcy.

Most auto suppliers have been squeezed by their customers to lower profit margins and, if they are heavily dependent on Detroit automakers, have lost volume. Plastech’s problems were compounded by the skyrocketing price of oil, required to make plastic.

Automakers have various arrangements with some struggling suppliers to keep them in business and maintain the flow of parts to their factories.

Plastech is a critical supplier to Chrysler, which is its fourth-largest customer, supplying 500 components to Chrysler vehicles at an annual cost of about $200 million. As such, Chrysler had negotiated a couple of deals to provide Plastech with early payments. A third deal was in the works that would have provided Plastech with a couple months more of cash.

However, Chrysler, abruptly changed course by canceling the contracts.

Why? First, private-equity firm Cerberus Capital Management purchased 80 percent of Chrysler last summer so all bets on past deals were off. In addition, Chrysler’s new CEO, Bob Nardelli, just hired his former Home Depot colleague John Campi out of retirement to head Chrysler purchasing. And Chrysler has hired PricewaterhouseCoopers consultants to study the health of its suppliers.

Plastech insists Chrysler’s cancellation of its contracts is what forced the company to file for Chapter 11 in the first place. (Plastech also provides parts to General Motors and Ford, which continued to receive deliveries parts this week with no production interruptions.)

So for now Chrysler is back producing vehicles and Plastech is providing parts. But that may not last long.

The agreement reached Tuesday between the two sides runs only through Feb. 15. In the interim, Chrysler and Plastech head to court on Feb. 13 in the automaker’s effort to force Plastech to turn over the molds and dies it uses to make parts for Chrysler. Chrysler appears to be planning to have other companies make those parts.

Posted by Michelle Krebs at 6:54 AM under Chrysler , Companies , Personalities | Comments (1) | digg this | Seed Newsvine