Now that Collins & Aikman Corp. has entered Chapter 11, a whole new waiting game has begun - and the auto supplier's next moves may determine its long-term chances of survival.
If the Troy, Mich.-based company comes up with a solid restructuring plan that pleases its customers and creditors, it may stand a good chance of emerging from bankruptcy mostly intact.
Failure to develop a good plan, though, could result in a sale to another entity, predicted one auto industry turnaround specialist. At the same time, C&A cannot afford to make any mistakes when it comes to delivering on its existing contracts.
``The question is whether the [automakers] want to stay with the company or go with a sale of the business,'' said Van Conway, whose Birmingham, Mich.-based consulting group Conway MacKenzie & Dunleavy has worked with the majority of the turnarounds and bankruptcies in the auto industry. ``If the customers don't support the company as we know it, then it will be sold.
``They want to see what C&A can do in terms of re-engineering the company, but on the other hand, if they see other sourcing opportunities that are cheaper and more stable, they may go there.''
One toolmaker already owed money by C&A for molds delivered before the bankruptcy noted the business is carefully weighing how it should respond to requests for help now. That's despite reassurances that the court requires priority payments to suppliers for new parts purchased while the firm is operating under bankruptcy protection.
Kim Korth, president of Grand Rapids, Mich.-based consulting group IRN Inc., said that many of C&A's suppliers are in the same situation. They may not want to do business with C&A, but cannot afford to upset an automaker further up the supply chain.
``You don't want to shoot yourself in the foot in the long term, but you want to minimize your risk in the short term,'' she said. ``That's why you want to keep your eye fixed on the eventual customer.''
C&A, with nearly $4 billion in sales - an estimated $1.6 billion of it in injection molded components - filed May 17 for Chapter 11 protection with U.S. Bankruptcy Court in Detroit. It has more than $2 billion in long-term debt and a list of top creditors that includes banks, resin suppliers, other injection molders, toolmakers and even the Canadian customs agency.
Chicago-based BNY Midwest Trust Co. holds the top two spots among the firm's creditors, with $900 million listed in senior subordinated notes.
Just days before its filing, C&A's latest chief executive officer, David Stockman, was forced out of office and the firm admitted it was facing a severe financial crisis in funding both day-to-day activities and paying its debt.
Stockman also recently stepped down from responsibilities with Heartland Industrial Partners, the New York-based financial group that was controlling owner of C&A.
Acting CEO Charles Becker has said the company intends to use the Chapter 11 process to reduce its debt, reorganize and re-emerge as a stronger entity.
That will not be easy, Conway said. C&A is a huge and complicated business, with loans and deals linked to a variety of acquisitions that began in 2001 and built the business up to today's status as a mega-supplier.
``Clearly they're overleveraged,'' he said. ``There's going to have to be a sale of at least parts of the company or a large restructuring to get it down to a capital structure that works for this business. It's too early to tell exactly what their options will be because of the complexity of a [Chapter] 11 of this size.''
Conway said he can see problems related to C&A back to its massive roll-up of acquisitions that may have doomed the business even before the firm started seeing problems with production cuts by its customers and rising raw material costs.
``You could argue that two years ago this [outcome] was already under way,'' he said. ``This was essentially a failed integration of many integrations.''
Within six months in 2001, C&A purchased injection molder Becker Group LLC, the automotive fabric group of Joan Fabrics Corp. and the trim unit of Textron Inc.'s Textron Automotive Co.
``This was no different than a lot of other leveraged roll-ups,'' Conway said. ``They had heavy debts and bad integration. People should realize that it wasn't just a failure of the past week or so.''
But it is hard to find a truly successful roll-up acquisition strategy in the auto industry, he added.
``This was a bad business design coupled with not really wonderful management on top of the other conditions in the industry,'' IRN's Korth said. ``This was a train wreck waiting to happen.''
But Conway did fault C&A for the way it reacted during the past few months. Once it was clear that there were growing financial issues, the firm should have done more to prepare for the worst.
``They really should have hired people to see things through,'' he said. ``You want to be hired in advance. [Conway MacKenzie & Dunleavy] is in the business of figuring stuff out with the management team so that you don't shock everybody.
``Maybe they had another solution that I didn't know about, but there's a right way and a wrong way to go into [Chapter 11]. It appears that they went in the wrong way - abruptly, with no planning. Your customers, your employees and your creditors are not going to be happy.''
The auto supply industry is so interwoven that companies must keep customers fully in the loop or face upsetting them, he said. To protect their continued production flow, automakers must follow everything that happens within C&A closely, and take action if it is not satisfied.
An airline may be able to operate under Chapter 11 and have little visible impact on its passengers, as long as planes continue to fly on time, Conway said. Shoppers may not notice a department store's bankruptcy, as long as shelves are stocked and doors are open.
``But in the car business, the customers can't have any impact on their assembly and production lines,'' he said. ``They need to be in the loop here and to the extent that they're not being properly dealt with, that's going to hurt you coming out on the back end.''