The head of automotive injection molder Guide Corp. has resigned from his post, saying the company's biggest customer is not paying enough for parts. Sources familiar with the situation, meanwhile, say efforts to sell Guide back to its original owner, General Motors Corp., have broken down.
Dennis K. Pawley, who took over as chairman and chief executive officer of Guide in early 2000, announced his immediate resignation from the headlight and turn signal supplier on Dec. 19.
"I leave Guide today having taken the company as far along as possible in what continues to be an extremely difficult operating relationship with General Motors," he said in a prepared statement. "GM seems to be unwilling to fulfill its contractual obligations to Guide or pay a reasonable price for lighting components.
"While Guide's performance and quality have improved dramatically, pricing of components makes the company unprofitable."
GM spokesman David Barnas disagreed, saying the Detroit-based automaker has lived up to its end of the bargain with the Anderson, Ind.-based Guide.
"We firmly believe that GM has fulfilled all of its contractual obligations," he said.
Sources familiar with negotiations between the automaker and Guide's owners, Palladium Equity Partners LLC, told Automotive News that Palladium wants to sell the business back to GM for $1. Automotive News is a sister publication to Plastics News.
Discussions came to a halt over $130 million originally fronted to Palladium to help overhaul Guide, which GM wants back, according to the source.
New York-based Palladium formed Guide when it bought the lighting division from General Motors in late 1998. The business posted about $600 million in 1999 sales.
GM remains Guide's biggest customer, accounting for 95 percent of its sales. Guide supplies 75 percent of General Motors' forward and signal lights in North America.
Guide has 3,100 employees and 300 presses, with production sites in Anderson, Monroe, La., and Monterrey, Mexico — a 125,000-square-foot facility that just opened in October.
Guide was the third-largest injection molder in Plastics News' ranking of North American molders, based on 1999 sales.
Pawley is a former Chrysler executive who came to Guide through Palladium. He remains a member of Palladium's operating executive team. He took over from Guide's first CEO, Michael Hammes, who took another job in January.
President and Chief Operating Officer Bill Smith is the interim chairman and CEO.
Guide started off in financial straits. General Motors wanted to sell the unit — then part of its Delphi parts division before Delphi spun off to become an independent business — because Guide was losing roughly $100 million per year.
Even when the sale was announced, industry sources said the fiscal problems scared off some potential buyers. Those problems forced Palladium to launch a business turnaround from the start, a difficult proposition for any operation, said Jon Ball, a consultant with Birmingham, Mich.-based turnaround specialists Conway MacKenzie & Dunleavy.
"The reason GM and other [automakers] want to get out of these businesses is that they were unable to compete with low-cost producers," Ball said. "It can work, but the basic problem is that you inherit the cost structure that was causing the problems to begin with."
Ball noted now that the auto industry has entered a slowdown, suppliers are being squeezed to lower costs.
Pawley said Guide cannot survive independently without further investments. Palladium was not willing to sink more money into Guide without a bigger commitment from GM, which was unwilling to offer more than a three-month price increase, he said.
"I have become extremely disillusioned with General Motors' apparent lack of commitment to Guide's success," he said. "Unfortunately, this ill-fated approach by the automotive [original equipment manufacturers] to improve their financials by wringing profits out of an already stretched supply base seems to be in fashion this winter."
Even if General Motors does not buy back Guide, it has access rights to step in and continue work — regardless of whether Palladium tries to shut it down. The automaker has sued in the past to keep production flowing when another supplier, Breed Technologies Inc., shut down briefly in August 1999 during a pricing dispute.
Pawley told Automotive News that hopes for a successful arbitration have faded, with the $130 million as the sticking point.
"It's just a mess," he said.