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February 11, 2008 01:00 AM

Molders could compete for Plastech work

Rhoda Miel
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    The bankruptcy of one of North America's biggest automotive plastics suppliers, and its ongoing battle with one of its customers, could free up hundreds of millions of dollars' worth of work for other injection molders. But do not expect any sudden shifts on the supplier horizon.

    No one is certain yet who will take on the work of Plastech Engineered Products Inc. Companies must work out the logistics of moving all that business. And that is without taking into account if the U.S. Bankruptcy Court will give approval to allow the work to move.

    The Dearborn, Mich.-based firm threw the auto supply industry into turmoil Feb. 1 when it filed for Chapter 11 protection in U.S. Bankruptcy Court in Detroit. While the industry has become accustomed to working with companies in bankruptcy - with molders and customers alike learning how to work within the system to continue uninterrupted production - the Plastech filing has been an exception.

    On Feb. 4, Chrysler LLC of Auburn Hills, Mich., announced it was closing plants because Plastech was not shipping parts. Sources within Plastech said delivery stopped because Chrysler stopped sending electronic orders, pointing out other customers continued getting parts without any difficulties throughout Chrysler's shutdown.

    On Feb. 5, the two companies reached a temporary agreement that allowed parts to continue to flow until mid-February. But there is no guarantee what will happen after that, including whether the court will allow Chrysler to get its tooling, or if Plastech will keep the work.

    Plastech began with a single plant in Caro, Mich., in 1988 and grew to take in nearly 40 plants in North America with an estimated $1.5 billion in sales in 2007. It has about $200 million in sales to Chrysler.

    Johnson Controls Inc.'s automotive business unit in Plymouth, Mich., is its largest customer with about $700 million in business.

    Plastech makes interior, exterior and under-the-hood parts, with most of its work in injection molding. It grew by winning new business and acquiring other companies, including its 2004 purchase of LDM Technologies Inc.

    With majority owner Julie Nguyen Brown - a Vietnamese immigrant - the company offered automakers and suppliers a chance to source business with a minority supplier, but Plastech also developed a reputation for squeezing costs out of the manufacturing process.

    ``Plastech was not known for being a wasteful supplier,'' said Jeff Mengel, a partner with consulting group Plante & Moran PLLC.

    But in its court filings, the company also noted it has been losing money. In 2006, the company saw net losses of about $73 million on sales of about $1 billion. The filing did not list 2007 numbers.

    While Plastech's customers have been providing cash to keep parts flowing, Plastech blamed lower production levels by automakers, increasing resin costs and a tougher competitive environment for the losses.

    In its filing, company executives noted they thought Plastech had reached financing agreement with its customers when Chrysler terminated its purchase orders on Feb. 1 and demanded that Plastech hand over its tools. Plastech then filed for Chapter 11 protection, which means the court will have to rule on what happens to molds and other equipment.

    The showdown accentuates an aspect of Plastech its competitors have known for a long time, Mengel said.

    ``Plastech has a reputation in the industry for being tough, especially for toolmakers,'' he said.

    While the firm has stressed its ability to deliver good parts at low cost, molders and its suppliers have talked privately for years about the difficulty of doing business with Plastech.

    ``When it comes to brinkmanship negotiations, no one is better than Plastech, especially when it's dealing with its competitors,'' Mengel said.

    For its part, Chrysler does not seem to be backing down. While the carmaker and Plastech have a temporary agreement in place now, Chief Executive Officer Robert Nardelli told reporters at the Chicago Auto Show that Chrysler still intends to move business out of Plastech.

    ``We have to stay competitive. Our customers expect that,'' Nardelli said in an interview in the Wall Street Journal. ``Obviously if they're not financially sound, we certainly aren't in the business of subsidizing. No hard feelings, no animosity, just solid business practices.''

    Chrysler has been in contact with other molders, asking them to be prepared to take on extra business.

    ``There is excess capacity, but the question is, how long will it take to move it?'' pointed out Jim Gillette, supplier analysis director for consulting group CSM Worldwide in Northville, Mich.

    To begin with, it is almost impossible to calculate exactly how much excess capacity is available in the plastics auto supplier base, because numbers fluctuate from day to day based on automakers' production schedules.

    One rough estimate - comparing the number of door panels made during the auto industry's peak production levels of 17.7 million cars in North America in 2000 to the estimates of 15.8 million for 2008 - makes it clear there should be injection molding presses available.

    Gillette noted much of that capacity is in plants forced to close when they lost business to Plastech. Since that capacity is in closed plants, however, it would not be easy to bring it back up into service.

    The work at Chrysler involves simple molded parts and complex assemblies such as center consoles and painted exterior trim including bumper fascia. That work cannot be moved overnight, Mengel said.

    ``Just think of all the logistics, of building the parts banks, of getting your [parts validated],'' he said. ``There's the processing, getting tooling validated, getting presses validated. You've got to get the material and get the material validated. Even moving a tool from one press to another in the same facility requires a lot of work.''

    Some parts, such as simple exterior trim, can be easy to transfer. Other parts like painted exterior components requiring high- gloss looks with an exact color match add another degree of difficulty.

    Adding to the complication is that many of those parts Plastech now makes rely on assembly equipment owned by Plastech - not Chrysler.

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