Automakers are staggering from the industry's downturn, but the auto supply business may have just regained some stability as Johnson Controls Inc. takes over the interiors operation of bankrupt Plastech Engineered Products Inc. The deal creates a $1.2 billion plastics business with more than 29 North American plants.
JCI owns 70 percent of the new joint venture, now operating under the name JCIM LLC, with other Plastech lenders also holding an equity stake. The partners purchased the business out of bankruptcy to ensure a steady supply of parts for JCI and automakers. The name may change in the future.
With a corporate office in Milwaukee, Wis., and its automotive business headquartered in Plymouth, Mich., JCI contributed $135 million in cash and folded its own five injection molding plants into the venture.
JCI said in a July 1 news release that it expects the venture to break even in 2009 and earn money by 2010. The plants will turn out a variety of interior parts including instrument panels, door panels and center consoles.
The company has negotiated multiyear contracts with key customers, JCI noted.
``Through this new joint venture we are better able to leverage our scale to improve quality and profitability,'' said Jeff Williams, North American group vice president and general manager for JCI's auto group. ``It also creates a strong and reliable supplier for our customers, who have been very supportive of our plants.''
The venture should finally settle production questions first raised when Plastech entered Chapter 11 protection with U.S. Bankruptcy Court in Detroit in February as part of a move to stop customer Chrysler LLC from confiscating its tools and moving business out of Plastech.
The court action halted Chrysler's action, but Dearborn, Mich.-based Plastech also was left with few options beyond selling or closing its assets.
JCI, which was Plastech's biggest single customer, led the purchase of Plastech's interiors business, with Magna International Inc. of Aurora, Ontario, buying Plastech's exterior plastics assets.
Magna's acquisition was not a surprise, because Magna has pushed for more overall manufacturing, but the acquisition marks a big change for JCI, which started divesting its noncore plastics production two years ago. It preferred to buy most plastic parts for its interiors from companies like Plastech and focus its own manufacturing on proprietary processes like its CrafTec multishot molding.
Plastech's bankruptcy filing left it and automakers alike scrambling for the best solution.
``Obviously when you get into a bind, when you get into a situation like [Plastech], you need to control the outcome of what happens,'' said Laurie Harbour-Felax, president of auto industry consulting group Harbour-Felax Group of Royal Oak, Mich., in a telephone interview.
The industry especially JCI and the Big Three automakers needed someone to step in quickly and ensure a steady supply of parts. With the current difficult economic conditions for automakers and suppliers alike, though, there was almost no other firm capable of picking up Plastech's slack, especially at the company's high volume of production.
``This happened so quickly and there really wasn't anybody else to take over the work,'' Harbour-Felax said. The best way to control the situation, she added, was for JCI to step in and take charge by buying the Plastech assets.
Now that JCI and the automakers can control production from Plastech's presses, Harbour-Felax said she expects the partners to develop a long-term strategy for the injection molding operations that could include consolidating some operations, shutting down unneeded capacity and improving the overall business.