Ford, GM and JCI support Chrysler in Plastech dispute
Ford, GM and JCI support Chrysler in Plastech dispute
Quality issues emerge in court testimony
Automotive News | February 13, 2008 - 12:43 pm EST
DETROIT — Lawyers representing Ford Motor Co., General Motors and Johnson Controls Inc. today voiced support in U.S. Bankruptcy Court for Chrysler LLC’s effort to retrieve tooling from supplier Plastech Engineered Products Inc.
In addition, a Chrysler executive who testified in court shed light on the depth of the financial and operational troubles that have plagued Plastech for at least a year.
Douglas Doran, Chrysler’s director of interior procurement, said Plastech’s quality issues were far worse than the typical supplier and said those quality issues — coupled with Plastech’s continued financial needs — led Chrysler to cancel its contracts.
Doran said Chrysler was monitoring Plastech’s financial condition for more than a year through suburban Detroit consulting firm BBK Ltd. BBK told the automaker that the supplier was having trouble paying suppliers and had violated agreements with its lenders.
“BBK indicated that they were insolvent,” Doran said.
Future survival at stake
Plastech, which filed for Chapter 11 protection Feb. 1, is trying to protect the tooling that Chrysler wants.
Last week, with Chrysler trying to sever its business with the supplier of plastic trim parts, Plastech stopped supplying parts to the automaker. The action caused four Chrysler plants to shut down for at least a day.
“GM strongly supports Chrysler’s position – its right to take possession,” said Robert Weiss, an attorney representing GM and partner with Honigman Miller Schwartz and Cohn LLP.
Gregg Galardi, an attorney representing Plastech, said the customers’ position shows that Plastech’s future survival hinges on the tooling issue.
Frank Merola, an attorney representing some of Plastech’s creditors, told U.S. Bankruptcy Judge Phillip Shefferly that if he rules in favor of Chrysler, “You sentence this case to liquidation.”
Plastech contends that if Chrysler pulls its tooling, Ford, GM and Johnson Controls will follow, rendering Plastech unable to do business.
Doran said Chrysler has paid for about $167 million worth of tools — consisting of stamping dies, injection molds, fixtures and other equipment — and acknowledged that Plastech has an additional $13.4 million of equipment that Chrysler has not paid for.
Two bailouts
Chrysler twice participated in bailout agreements with other customers over the past year, including in January when it contributed $10.7 million to help bail out Plastech.
Days after the January agreement was signed Plastech contacted Chrysler again, saying it needed a third bailout package.
Meanwhile, Plastech’s production quality was degrading. Without specifying a time period, Doran said Chrysler issued about 450 “quality tickets” to Plastech for “non-conforming material.” Chrysler considered this a material breach of its purchase agreement.
“What was material was the frequency and the number of incidents,” Doran said.
When asked to compare the quality issues with other suppliers, Doran said he considered them to be “extraordinary.” In fact, quality became so bad that Chrysler sent a third party to observe production at Plastech’s plants.
The judge continued to hear evidence in the case today. The hearing is expected to continue Thursday.
Plastech, of suburban Detroit, is a 20-year-old, minority-owned supplier. It owns more than 35 plants in North America and generated $1.4 billion in sales last year. According to court documents, the company employs 7,700 workers, 70 percent of them union members.
