Chrysler Plays Chicken with Parts Supplier, Parts Supplier Loses

Ah, the weird, weird world of supply chains, Motown business practices and secretive private equity maneuverings. Yesterday, Plastech Engineered Products Inc., Chrysler's main supplier of parts, filed for bankruptcy. Chrysler, owned by private-equity firm Cerberus Capital Management, sued to obtain the toolings necessary to create the parts, but as of today, that action hasn't been resolved. Meanwhile, Chrysler has given more than 10,000 workers a little time off (with more to come today). The Freep has the best take on this story, which has naturally encouraged speculation on the interwebs that Cerberus is attempting a decisive coup de grace, simultaneously whacking a supplier that had become a cash drain and giving itself an excuse for a brief production slowdown to clear some unsold inventory. The actual story might not be quite so dark, but it certainly doesn't look good for Plastech.

The salient point in the Freep story is as follows: "The lost production won't hurt dealers for a while. Of the eight models affected on Monday, only two tend to sell in less than the industry average of 60 days of vehicles." Chryslerberus ain't exactly clearing off dealer lots at the moment, but they're not in completely dire straights, either, in terms of unsold vehcicles. AP reports that, according to Ward's, Chrysler currently has a 75-day reservoir of product. But AP also reports that Cerberus had been running thin on parts, presumably to instill a just-in-time approach on the assembly lines, and when Plastech couldn't keep up, Chrysler pulled the plug.

Industry observers have noted that Plastech has been a basket case for years. The company has benefited from clubby Detroit bailouts in the past, but its bottom line hasn't improved. It probably hasn't helped that Plastech has been engaged in making stuff out of, you know, plastic, and that "plasticky" is one of the main knocks against U.S. car interiors.

It looks like Cerberus seized an opportunity to play by Wall Street rules and take step one to shift its supply chain to less pricey realms. As the Freep reports, taking Plastech's toolings would effectively crush the supplier, as it would be competitively neutered. Chapter 11, one assumes, provides some protection in this area. Cerberus, no doubt, will argue in court that it owns the equipment and must secure it in order to stay in business.

Ford and GM are still buying parts from Plastech.

Updates to come as the story moves.

Plastech files for bankruptcy, Chrysler idles plants [Freep]