Automotive News - February 4, 2008 - (Page 8) 8 • FEBRUARY 4, 2008 advertising WANT RESULTS? NEED RESULTS? Dealers Prove Our Advertising Gets STOP BY BOOTH #3445W AT NADA (3RD FLOOR, WEST HALL) Plastech: Hard choices for Detroit 3 Robert Sherefkin and David Barkholz rsherefkin@crain.com Walking wounded If GM, Ford or Chrysler wanted to move interior-trim contracts from Plastech, it would have to choose an alternative from a problem-filled pool. SUPPLIER STATUS RESULTS! • KEYES AUTO GROUP • IRA MOTOR GROUP • TOM WOOD AUTOMOTIVE • CHECKERED FLAG • AUTONATION • DIEHL MOTOR COMPANY • CORAL SPRINGS AUTOMALL • RUSTY ECK FORD • AUTOLAND • HENDRICK CARY AUTOMALL • PATRICK AUTO GROUP • HUBLER AUTOMOTIVE • PLEASANTON AUTOMALL • DEPAULA CHEVROLET • WALLACE NISSAN OF KINGSPORT • SUPERIOR CHEVROLET DETROIT — Automotive trim supplier Plastech Engineered Products Inc. is seeking a $200 million bailout from its major customers: General Motors, Ford Motor Co., Chrysler LLC and Johnson Controls Inc. Those customers are running out of easy choices. Plowing more money into Plastech is a costly tradition. But letting the company fail would require finding a new source for key parts, and prospective sources are scarce. Several longtime leading auto interiors suppliers are gone, swallowed or part of what billionaire investor Wilbur Ross terms “the walking wounded.” Collins & Aikman Corp., the largest supplier in the sector, liquidated last year. The owners of Cadence Innovation LLC are trying to sell the company (see story below). Meridian Automotive Systems Inc. exited Chapter 11 just a year ago. Meridian Automotive Collins & Aikman Ford Saline, Mich., trim plant Cadence International Automotive Components what Ross calls “customer fatigue.” Their $46 million bailout early last year failed to stabilize Plastech. Plastech, of suburban Detroit, is North America’s largest minorityowned supplier, owned by Vietnam native Julie Brown. Last year it had sales of $1.4 billion. It makes blowand injection-molded plastic products, including bumper components and cockpit modules. GM and Chrysler, which put up $18.4 million of the last Plastech bailout, consider the supplier to be a problem for Ford and Johnson Controls, which are among Plastech’s largest customers, says a financial ex- Exited Chapter 11 last year Liquidated; not available Distressed-asset sale For sale by private equity owners Growing size gives it pricing leverage against carmakers ecutive familiar with the supplier’s finances. But all have substantial contracts with Plastech. They are lining up alternative suppliers. Last week, GM sought quotes from another trim supplier for its GMT900 light trucks, the Buick Enclave and Rainier and the Chevrolet TrailBlazer and Colorado. Chrysler wants a backup for its 300 sedan, says a manager at the other supplier. ‘Junk’ The gravity of inquiries was much greater than the standard Detroit 3 practice of market-testing parts prices, the manager says. ‘Customer fatigue’ Plastech’s customers are suffering Last week, Standard & Poor’s Ratings Services said it lowered its corporate credit rating on privately held Plastech deep into “junk” territory — to CCC+ from B-. The Detroit 3 has a backup in Ross’ International Automotive Components Group. But the automakers have been wary of one supplier dominating a sector, and Ross’ company is close to that. Still, bankruptcies can be expensive and disruptive. Collins & Aikman’s Chapter 11 saga ultimately cost the Detroit 3 more than $665 million. The total included factory subsidies, emergency price increases and loans that were not repaid. Before the May 2005 Chapter 11 filing, then-CEO David Stockman asked for a bailout of less than $50 million. If the automakers had paid, that might not have staved off bankruptcy. But the automakers said no. Before Collins & Aikman was liquidated, it briefly shut Ford’s Hermosillo, Mexico, assembly plant over a price dispute. And a worker shut-in at a Collins & Aikman plant disrupted Chrysler’s Canadian operations. Cadence for sale, 3 years after it began Robert Sherefkin rsherefkin@crain.com ■ Geneva-bound The face-lifted 2009 Mercedes-Benz SL debuts next month at the Geneva auto show. Highlights include a restyled hood, front fenders and headlights and a new single-bar grille that emphasizes the width of the body and makes a visual connection to a Mercedes icon: the 1954 300SL. Another new feature is Airscarf — an extra heating system built into the driver and passenger seats. Warm air flows from vents in the head restraints, acting like an invisible scarf around the head and neck. GET A COMPLETE MARKETING PROGRAM! Guerrilla TV Marketing Radio Print Hispanic Direct Mail Website Optimization Web Design Internet In-Store Bohr: Contract yuks are yuck Robert Sherefkin rsherefkin@crain.com CALL, EMAIL, OR STOP BY OUR BOOTH TO RECIEVE A ONE ON ONE VIP PRESENTATION 1-888-878-ZADV zauto@zadv.com www.zadv.com or visit DETROIT — Here is part of a Detroit automaker’s standard contract for buying auto parts, according to Bernd Bohr, chairman of the Robert Bosch GmbH automotive group: The buyer “can terminate this contract at any time for any reason. Buyer shall not be liable to make payments to seller for product development engineering costs, facilities. …” That provision drew laughter as Bohr read it from the podium at the recent Automotive News World Congress. Bohr’s point: Automakers’ terms and conditions are threatening industry investment. And he argued that the disincentive for investment, and the distrust in the automaker-supplier relationship, actually put Detroit automakers at a disadvantage. “Does that sound comfortable for a multibillion-dollar r&d” investment from a supplier? Bohr asked. Bosch’s Bernd Bohr got some laughs when he read the terms on automakers’ contracts with suppliers. Another contract contained this: “Buyer may terminate the purchase order any time and for any and no reason.” Then there was this: “In the event of a termination, the buyer will pay the supplier cost or allowances.” “Sound fair?” Bohr continued. “Let me read the whole sentence: ‘In the event of a termination, the buyer will pay the supplier cost or allowances that the buyer in his sole discretion may elect to pay.” As Bohr criticized the contract language of some automakers, he was interrupted by applause from suppliers in the audience. Neil De Koker, managing director of the Original Equipment Suppliers Association, says this kind of contract language bothers the industry’s bankers. When small suppliers seek financing, he says, their bankers ask: “These are the conditions you operate under?” A Bosch spokeswoman declined to elaborate. The company, based near Stuttgart, is the world’s largest auto supplier. De Koker, whose group has focused on terms and conditions, declined to say whether he knew which contracts were cited. Asked whether they were Detroit 3 contracts, De Koker said Toyota and Honda have tough contract language. Following Bohr on the World Congress program was General Motors Vice Chairman Bob Lutz, who quipped: “I will convey to Bo Andersson that Dr. Bohr has some views on our contractual terms, but I am not sure Bo Andersson will respond.” c DETROIT — Less than three years after a group of private equity firms formed Cadence Innovation LLC, they are shopping the auto parts maker. Falling Detroit 3 production has undercut Cadence’s plans to gain the new business needed to assure longterm viability, say sources who requested anonymity. “The interior trim segment continues to be plagued with excess capacity even after the exit of Collins & Aikman,” says turnaround expert John Groustra of Conway MacKenzie & Dunleavy in suburban Detroit. Private equity entered the automotive interior trim business earlier this decade because it appeared cheap and promising. Since then Detroit 3 production has tumbled while raw material prices have climbed. Last month at the Automotive News World Congress, investor Wilbur Ross said a 750,000-unit drop this year in North American sales would quicken supplier consolidation. Cadence, of suburban Detroit, was created in 2005 when Harbinger Capital Partners, of New York, and Yucaipa Cos. LLC, of Los Angeles, bought assets of the former Venture Holdings Co. LLC out of Chapter 11 reorganization. In early 2006, Cadence landed a major contract for the interiors for General Motors’ Lambda platform crossovers: the GMC Acadia, Saturn Outlook and Buick Enclave. Cadence stepped in when Collins & Aikman abandoned the GM business over pricing issues. Last year GM named Cadence a supplier of the year. Today, Cadence operates seven plants in North America and 12 worldwide. Global sales total $753 million. Cadence spokesman Russell Chick declined to discuss company plans. c http://www.zadv.com http://www.zadv.com
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