Plastech files bankruptcy

Dearborn auto supplier seeks Chap. 11 protection as it struggles with high costs and reduced demand.

Eric Morath / The Detroit News

Distressed auto supplier Plastech Engineered Products Inc. filed for voluntary bankruptcy Friday, according to court documents.

The Dearborn company appears to be caught in the same vice that has pushed other auto suppliers to the brink of bankruptcy: soaring costs for raw materials and health care and reduced demand for parts from automakers cutting production amid declining consumer demand.

Plastech, the largest minority-owned auto supplier, filed for Chapter 11 protection in U.S. Bankruptcy Court in Detroit. Founder and CEO Julie N. Brown owns nearly 100 percent of Plastech.

The company, which mainly produces injection-molded plastic components for vehicle interiors, is dependent on oil-based resins which continue to increase in price. But the supplier likely cannot pass along those costs to it customers, as automakers typically demand price reductions throughout the duration of supply contracts.

Plastech has about 4,800 workers in nearly 40 U.S. factories. The company had $1.1 billion in revenue in 2006, according to Hoover’s Company Records.

The bankruptcy filing came the same day Chrysler LLC canceled its contract with the supplier. Plastech provides parts for the Chrysler 300, among other vehicles.

"We notified Plastech of this pending action a month ago," Chrysler spokesman Kevin Frazier said. "We took this action to safeguard delivery of parts to our assembly plants and to maintain a high quality of product for our customers."

Chrysler began moving its tooling Friday, but continues to work to find a "cooperative solution," Frazier said.

The bankruptcy filing likely means key customers, including Detroit’s Big Three automakers, chose not to bail out Plastech, said auto industry analyst Erich Merkle of IRN Inc. in Grand Rapids.

"This was probably thought to be the best course of action," he said. "The auto companies can’t keep throwing money at the situation."

General Motors Corp., Ford Motor Co., Chrysler and supplier Johnson Controls Inc. gave the company a $46 million bailout early last year.

The company has more than $100 million in liabilities, according to court documents. Credit rating agency Standard & Poor’s said that, as of Sept. 30, 2007, Plastech’s total balance-sheet debt was $488 million.

Several tooling companies, Dow Chemical and BASF Corp., are among Plastech’s largest creditors.

If the automakers had bailed out the company, they would have run the risk of other suppliers demanding financial assistance or better prices. Already, at least eight Detroit-area suppliers are in Chapter 11 bankruptcy, which allows a company to continue operating while it reorganizes.

In bankruptcy, Plastech can look to pass along some of its increased cost to its customers.

"The supplier comes along and says, ‘Look we’re not making money, we’re in bankruptcy, here’s our new price,’" Merkle said.

While automakers could look to sources elsewhere, changing to another supplier in the middle of a product is difficult and expensive. Plastech provides components for such popular models as the Ford F-150 pickup and GM’s line of full-size crossovers.

It’s unknown if the bankruptcy filing will impact Plastech’s production. But if negotiations collapse it could result in the idling of assembly lines, as happened during a 2005 dispute between now-defunct auto supplier Collins & Aikman and Ford.

"This is the fallout of automakers trying to become smaller, reduce their overhead capacity, and forcing their supply base to do the same thing," he said. "This may not be the last supplier we see in 2008 that has to file."