Chrysler Plays Chicken with Parts Supplier, Parts Supplier Loses

Illustration for article titled 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.

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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.

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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]

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DISCUSSION

allenparkpete-old
allenparkpete

I've read at least three different reports on this situation and of course the analysts muddy the waters by speculating what or what not Cerberus is doing. I have never dealt with Plastech but I have friends that do...its easy to get the real story. What makes me laugh is that somehow there is an interpretation that Cerberus is playing hardball. Prior to their ownership of Chrysler, the old DCX guard had a wing-ding with Lear on Seating so much so that Lear got the boot. And so did Collins & Aikman, a plastics supplier that no doubt was forced to send their tooling to Plastech when C&A disappeared. Prior to that was Textron who ended up bailing out of the automotive game for the most part and selling off their auto stuff to Magna and C&A. Anyone see a pattern here?

Supplier/Customer disputes are not that uncommon. What I want to know is..........who owns the tools...Plastech or Chrysler? In the glory days, the OEM owned most of the tooling but in the past 10 years, the supplier has been asked to carry the cost burden by "owning" the tooling and carrying the depreciation costs.

If Chrysler Purchasing wanted to pull tools before getting an alternate source (and I doubt that a veteran purchasing department would do this without a plan) then they are bigger dumbasses than one could imagine...and that is where Cerberus may have turned up. They have a lot to learn if that's the case. As for supplier customer clubbiness. Those days are long over. Julie Brown has no friends anymore.