Meridian Automotive Systems Inc. was created through the late 1990s and early 2000 and 2001 through a series of acquisitions that created a powerhouse capable of delivering exterior and structural car parts made with thermoplastics, thermoset composites or metal.
But its creation also came with long-term debt to fund those acquisitions. As the auto industry began to show signs of long-term turmoil, that debt took a heavier toll and the firm entered Chapter 11 protection with the U.S. Bankruptcy Court in Wilmington, Del., in April 2005. It turned out to be only one of the first of a wave of suppliers forced into protection to reshape its finances.
At the time, everyone thought it would be an easy process to emerge, said President and Chief Executive Officer Richard Newsted. He estimated it would take 12-15 months at the most.
Instead, it took 20 months - but, at the end of December, the Allen Park, Mich.-based auto supplier did what most other bankrupt firms haven't managed yet. It emerged from protection.
Newsted took a break from showing new investors and customers Meridian parts on cars at the North American International Auto Show in Detroit on Jan. 11 to discuss the process with Plastics News and talk about Meridian's prospects in an industry that is continuing to bring new stress to suppliers and automakers alike.
Q: Since Meridian entered Chapter 11, the auto industry has become an even more difficult business, with analysts saying this year could be the worst. Does that make it more difficult for the firm to re-establish itself outside of protection at this time?
Newsted: The reason that we sought Chapter 11 protection was to really deal with our capital structure. We had too much debt, we had cash flow problems. We always had a strong reputation for quality, delivery, good product innovation, material offerings, and as we went through the whole Chapter 11 process, the one thing we're very proud of is we did not reject any customer contracts. We didn't cause any supply disruptions. Our customer relations were very good going into bankruptcy and as good, if not better, coming out because we didn't cause them any of the typical issues that they might face with a Chapter 11. My point is, coming out right now, while the auto industry is facing its own set of challenges, we're coming out at a time when to our customers, good quality, good delivery, good engineering solutions - and at the same time, being strongly capitalized, having strong liquidity - I believe that makes us the supplier of choice.
Q: How important is that reputation going to be?
Newsted: They check the boxes when they award a contract, from an engineering standpoint, from a cost standpoint. Now they can check the box [for Meridian] as a strong financial company, so that's one more differentiation for us. We can gain new business. We've started the term internally that we believe that 2007 can be the year of the bounce, as corny as that might sound. From the bounce standpoint, I think there's a lot of business out there that we can be the supplier of choice on. That's what we're really going after. So while it's still a year of a lot of change in the automotive industry, I think we can still garner new business.
Q: New financial backing has come into the composites side of the auto supply business, both in terms of Meridian's new status and through Continental Structural Plastics, which now includes the old ThyssenKrupp Budd Co. operations. Does it seem like there is resurgence for composites?
Newsted: Yes. It's really starting from the customer, from the engineering and from the design studios that composite is an excellent alternative as they look to differentiate vehicles with the geometry, with the lower tooling cost, with the possibility to get to market quicker. They use [composites] to differentiate that product. We're on some exciting vehicles now, and we're really one of two key competitors in the industry right now.
Q: So is there a new interest in trying to push the status quo by automakers?
Newsted: I wouldn't say it's an interest in trying new things as much as there's a tremendous amount of motivation for [automakers] to get something to the market sooner. They come up with something and they want to get it to the marketplace quickly. With composites you bring that alternative.
Q: Technology has changed during the time that Meridian has been in Chapter 11, with new products and new processes making their way to the market. How has the company been able to respond to those issues?
Newsted: This goes back to when we went into Chapter 11. When we went in, we went in strictly to deal with capital structure. We were on the curve already with new product development. We weren't trying to play catch-up, we weren't trying to do something different. Throughout the 20 months of Chapter 11, we never had to stop any of those activities. We believe in the business model for Meridian. We believe we are the right supplier for the OEMs. Our whole Chapter 11 process was not a distraction to our business. For myself and members of the management team, there were a lot of things with bankruptcy that became a diversion, that we had to deal with, but to our engineering, to our commercial, to our manufacturing employees, they stayed with a very business-as-usual approach.
Just the other day, I was talking with a lot of our employees. I told them that we're coming out of Chapter 11, but we're really now just starting at Chapter 1 again. We had a chance to come out with better cash flow. Now it's incumbent upon us as to what we do with that.
Q: There are companies that have been where Meridian was, companies that are there now and companies that may still be forced into Chapter 11. Do you have any advice for them?
Newsted: I've been asked that a lot over the last 12 days. It's hard for me to comment for other companies, since they have their own issues, but I'd give three pieces of advice for any other company. Number one, you need great professionals. It is a legal, court-supervised process, and you need those professionals. Number two you have to identify what issues you need to deal with and you need to deal with them expeditiously, and number three is communication to your employees.
We took a very concentrated effort to communicate in a timely fashion with all of our employees. It's a very confusing process. I've never been through a Chapter 11 process before. This was all new to me. It was all new to our management team. That's why you need professionals to help guide you through it, but also for your employees and their families, they need to understand. There is so much bad news out there that [the employees] are asking am I going to be employed tomorrow, or next week, or next month or next year? We tried, openly and honestly to communicate in a timely fashion.
We're going to continue strong communications and open candor communications. It is one of the factors that brought us together as a unified team over the last 20 months. Before we went into bankruptcy, we did operate as a metals group, as a thermoplastics group, as a composites group. We had different silos and different departments. We don't have that any more. Over the 20 months we've been able to break down those barriers so that we've been able to operate as Meridian. That has to stay because that's the only way. You've got to have everyone understand. You may not always know the answer or what you're going to do next, but everybody has to be a part of the process.
Q: But everyone knows that there are factors in the industry beyond their control, like auto sales and raw material prices. How do you handle those issues?
Newsted: As an automotive supplier, we rely on the sales of the vehicle to the consumer. If the consumer doesn't like the vehicle, then the [original equipment manufacturer] doesn't produce the vehicle; if the OEM doesn't produce the vehicle we don't supply the part; if we don't supply the part then we don't need the employees and we don't need the facility and we impact the community. We really are - and I know it's a cliche - but we really all are in this together. And we've got to figure out what makes sense. I think we've got a good manufacturing footprint. I think our facilities are in a good location. I think we've got excellent relations with the customers. But there are no guarantees and nobody knows what it's going to be like next month or next quarter or next year. That's why, though we're out of Chapter 11, we're saying that we're back at Chapter 1. We're starting all over again. Everybody is uncertain about what tomorrow brings. There's a big black cloud, and we hope it's a cloud and not a thunderstorm.