First it was Plastech Engineered Products Inc., which entered bankruptcy protection Feb. 1.
Then less than two weeks later, Blue Water Plastics Inc. filed for Chapter 11 protection in U.S. Bankruptcy Court in Detroit.
The question now is not whether more automotive plastics suppliers will enter bankruptcy in the coming months, but who and how soon, according to consultant Kim Korth.
``You're going to have more shoes dropping in the next month or two,'' said Korth, president of Grand Rapids, Mich.-based IRN Inc.
And unlike the bankruptcies that hit the industry last year, which involved small and midsized firms, many of the players on the brink now are large firms that had ridden out the turmoil in the past, she said.
``The margin for error has narrowed dramatically in the last four to six months,'' Korth added.
Dearborn, Mich.-based Plastech, with annual sales of about $1.5 billion, filed for Chapter 11 protection in Detroit, and now is battling in court to continue production, even as customer Chrysler LLC seeks court approval to take possession of tools and move them to other companies.
Blue Water of Marysville, Mich., entered Chapter 11 on Feb. 12, listing more than $10 million in debts. The injection molder has more than $200 million in annual sales and specializes in functional plastics, including air ducts. The company last week was negotiating for $30 million in financing to continue operations.
President and Chief Executive Officer Michael Lord cited ``serious issues in the plastics segment'' of the auto parts industry in a Feb. 13 news release about the filing.
New York-based financial group KPS Special Situations Fund bought Blue Water in 2005 from Sarnen, Switzerland-based Sarna Polymer Holding Inc., which in turn had purchased the privately owned Blue Water Plastics Inc. in 2000.
KPS brought in Lord in 2006 to oversee a turnaround plan that included closing two Blue Water plants, refocusing operations and streamlining production. The plan garnered support and Blue Water won additional work from automakers that were nervous about the financial stability of other firms. In October, Blue Water invested $10 million to update equipment as new work came into the plants.
``Blue Water has accomplished a great deal in recent years by implementing a turnaround plan that included right-sizing our workforce, closing facilities, moving machines, increasing productivity, installing new management and launching new products,'' Lord said. ``Unfortunately we have reached this point because of serious issues in the plastics segment of the automotive parts industry.''
Production remains strong and is near full capacity, said James Sampson, vice president sales and engineering, in a Feb. 13 telephone interview. But the company also is dealing with resin prices that have doubled in the past three years and it has production costs related to three major contracts launching in April, May and June.
Blue Water has invested in equipment and training for those programs, but will not start seeing a return on its investments until after its automaker customers begin production.
``If you look at the industry, a huge portion of the industry is in distress and there are elements that are very dysfunctional right now,'' Sampson said.
Many of the issues being raised today are rooted in business decisions made four or five years ago, Korth said. For instance, companies signed contracts back then that provided little room for profit, set up the need for expensive capital investments to launch new business, or borrowed money that increased their debt payments.
On their own, those problems would have made business difficult but not impossible. However, they are coming into play at the same time the national housing crisis has tightened the credit market, making it harder for companies to borrow money. Resin prices are rising, and molders have no way to recoup the increases from customers, who themselves are cutting production as the economy slows.
And if that is not enough, automakers are fighting their own red ink, and cannot afford to bail out suppliers.
``There is customer fatigue,'' Korth said. ``The [automakers] are saying that they're not going to bail you out anymore.''
While some small and midsized molders have positioned themselves in a niche with few competitors, large firms with business plans built on high volume in general are suffering because of rising costs and slowing production.