By on February 4, 2008

auburnhi.jpg Automotive News [AN sub] reports that Chrysler is asking U.S. Bankruptcy Judge Phillip Shefferly to let the automaker take immediate possession of its tooling equipment from former supplier Plastech. If not, the automaker says the ensuing parts disruption will quickly spread from the four plants currently off-line to ALL of Chrysler's American production facilities. Plastech's lawyers opposes the motion, saying its business assets are protected by bankruptcy law. [TTAC previously reported that Chrysler had already taken possession of the tools; AN says Chrysler tried to do so on Friday, immediately after canceling the contract. And failed.] Chrysler's petition to recover the equipment will be heard tomorrow morning in a Detroit bankruptcy court. If the judge rules against Plastech, Chrysler could well file for C11 soon thereafter; it can't afford a three-week shutdown. 

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25 Comments on “Plastech Bankruptcy: Chrysler Teeters on the Brink of Bankruptcy...”


  • avatar
    KGrGunMan

    chrysler’s cars and trucks sit on the lot for something like 400 years before they are sold anyway so they can not produce any cars for a while and the supply on the dealers lots will still last in the hundreds of days. only the rental companys may be hurt by any lack of production, but there is always GM and ford…oh wait, i mean mazda to buy rental cars from.

  • avatar
    Robert Schwartz

    Chrysler will lose on this one. Many lawyers call Chapter 11: “Creditor’s Prison”.

  • avatar

    I hope that our tactless CEO at chrysler didn’t overlook the ability of plastech to keep the tooling. I don’t know the laws, but if it turns out plastech as rights to the tooling… that’d be a huge fumble.

  • avatar
    starlightmica

    How prophetic: that conversation from The Graduate.

    Mr. McGuire: ‘Plastics.’
    Ben: Exactly how do you mean?
    Mr. McGuire: There’s a great future in plastics. Think about it. Will you think about it?

  • avatar
    Zarba

    It seems to me there are a couple of unanswered questions here:

    1) Who’s tooling is it? If Plastech bought or made the tooling, then Chryslerberus is SOL. If Chrysler supplied the tooling, then they may have a shot. I would imagine there’s a contract out there that sets out who owns the tooling in case one or the other of the parties becomes insolvent.

    2) Is Chrysler a creditor? Does Plastech owe Chrysler money? If not, where does Chrysler get standing in BK court?

    In no attorney, but there should be contracts and agreements between the two that are relevant here.

  • avatar
    radimus

    It won’t surprise me at all if Chrysler is going to be filing soon themselves. Unless there is enough inventory sitting around to move until a new supplier is brought on.

  • avatar
    Luther

    “Chrysler will lose on this one.”

    If Chrysler can prove that they own the equipment, then they can take it back. Bankruptcy protects Plastech assets only. Watch for Nardelli to go to criminal court (theft) if Plastech refuses.

    Judging by Chrysler interior quality…Their equipment is old and worthless anyway.

  • avatar
    Redbarchetta

    I thought they were redoing all those interiors, what the hell do they need with this worthless tooling. I have an idea they just want to send it to the Chinese company that is going to pick up the slack but then that would mean more of the same crap interiors not better ones like they said were coming.

  • avatar
    nonce

    Although a shutdown sounds good because it lets Chrysler burn off inventory, they probably still have to pay all their workers.

  • avatar

    Just another thought… Perhaps they do have it set up to redo the interiors (you know make them close to something marketable) and the shut down is over some of the trim/engine cover stuff. Even though it would just be a few parts, an assembly line isn’t able to function if its missing a single bolt very well. I’m trying to be optimistic

  • avatar
    guyincognito

    Usually when an automaker contracts a certain supplier to make a component they buy the tools as part of the deal, but that cost is amortized over most of the life of the component. Suppliers tend to add in some details to the contract to prevent the automaker from just up and leaving with said tools once that amortization period is over, though.

  • avatar
    jolo

    There’s a lot more to this story than meets the eye. See:

    http://biz.yahoo.com/ap/080204/chrysler_plastech.html?.v=8

    and

    http://biz.yahoo.com/rb/080204/chrysler.html?.v=3

    Excerts: Frazier said Chrysler terminated its contracts with Plastech on Friday.

    Chrysler LLC has closed four assembly plants and may be forced to shutter the rest of its global assembly operations within a short time due to a dispute with supplier Plastech Engineered Products Inc, which filed for bankruptcy court protection on Friday.

    Chrysler, which terminated all its contracts with Plastech on Friday due to the supplier’s “ongoing financial struggles,” said in documents filed with the U.S. Bankruptcy Court in the Eastern District of Michigan that it may be forced to quickly close 12 assembly plants around the world because the supplier is no longer shipping parts to the Chrysler plants.

    Plastech came back to Chrysler and said it needed more money so Chrysler and the other customers entered into a second agreement on January 22, under which Chrysler accelerated $10.7 million in payments to Plastech under existing contracts, according to court documents. In total, the customer group gave Plastech $40 million in accelerated payments.

    Chrysler decided to take possession of the tooling, getting a Wayne County Circuit Court to give it a temporary restraining order that allowed the automaker to send “a team of trucks” on Friday to the supplier’s plants, according to court documents. However, Plastech filed for bankruptcy to prevent that.

    TWISI (the way I see it): Plastech put a loaded gun to Chrysler’s heads. Chrysler cocked its own trigger and Plastech pulled the safety pin out of the gernade it had in its lawyer’s briefcase.

  • avatar
    nonce

    Chrysler and “various other customers” of Plastech provided the struggling supplier with $46 million so it could continue to supply parts, according to court documents. Chrysler said it kicked in $6.9 million of the total.

    That group included GM and Ford, both of which said on Monday they were still receiving parts from Plastech and production had not been affected.

    Trying not to take Chrysler’s side too much here, but, how the sam hill can Plastech get away with this? Keeps on shipping parts to GM and Ford, stops shipping to the Chrysler?

  • avatar
    Cicero

    Chrysler’s already talking to Playskool about getting replacements for the switchgear and trim pieces that they used to buy from Plastech. It’ll be a step up in quality from Chrysler’s usual interior materials, but most of it will be in primary colors.

  • avatar
    NBK-Boston

    This is the outline of legal aspects of the story:

    Chrysler, we will assume, has good legal title to the tooling in question. Either they paid the tool and die company for it and had it shipped to the contractor’s factory, or the contractor got the equipment on its own initiative, but signed away the title as part of its deal to become a supplier to Chrysler. It doesn’t really matter; it’s Chrysler’s for argument’s sake.

    Chysler then, as owner of the tooling, allowed the contractor to retain possession of it — either in the form of a lease, or the form of a conditional sale with title retention clause, as a bailment, or some other method. Sort of like if I loan you my torque wrench for the weekend so you can change your spark plugs — it’s my wrench, but it’s in your garage (for the weekend). Again, the exact form generally doesn’t matter.

    The essential point is this: Once the contractor files for Chapter 11 bankruptcy, creditors are generally “stayed,” or temporarily restrained, from taking collection actions against the debtor, even if the applicable contracts (or the general law) would otherwise allow for immediate collection or repossession. Equally important is the fact that an owner of material items that are in the debtor’s possession will often be treated as a creditor or as a secured creditor of that debtor. He will thus be subject to the creditor’s stay, and may be restrained from walking off with the items. See here for a further discussion of some of these concepts.

    The idea behind such a rule is that Chapter 11 is meant as a “reorganization” proceeding, from which the insolvent company is expected eventually to emerge healthy. Preventing various third parties from immediately carting off the machinery in the insolvent company’s factory is important to that goal — how can the company keep running (albeit in reorganized or streamlined form) and emerge from bankruptcy if its production line vanishes? Had the contractor gone into Chapter 7 (liquidation), it would be admitting that it never hoped to restart production, and under those circumstances an immediate carting-off of machinery owned by other parties would make more sense.

    Now, Chrysler may try to argue that the machinery would be idled anyway, given the particular circumstances of this case, and that its value, or ability to be reinstalled in the original company’s factory (should the idled contractor face the prospect of a restart) would not be impaired if the machinery is temporarily moved to a nearby Chrysler location. This may be true and pursuasive enough so that the judge would rule in Chysler’s favor. Also, if Chrysler files for its own Chapter 11 proceedings, it gains some extra rights of its own, which may help it gain possession of the machinery.

    I also don’t wonder if this is a nifty scheme, on Chrysler’s part, for provoking a “legitimate” entry into its own Chapter 11 bankruptcy for its own broader-based purposes. Throw out a few labor contracts? Trim the dealer network cost-free? Dump whole brands and marques? The opportunities are endless. The danger, though, is that the creditors do get power over the equity owners once you enter Chapter 11, and could try to dilute the stake of the private shareholder — Cerebrus — making this good for the company but bad for the owners.

  • avatar
    Landcrusher

    Where is the truth here?

    Does Chrysler owe Plastech money, or not? Is Chrysler causing Plastech to go bankrupt, or is Plastech just extorting them?

    Help please.

  • avatar

    Nothing i’ve read at all says chrysler owes plastech money. Seems to me that Plastech called ch11 for no reason other than to hold chryslers tools. Keep in mind chrysler was only the 4th largest buyer of there products. The only non profit loss for plastech would be in the jobs of people running the chrysler tooling (as i see it) Seems chrysler and others fronted plastech a good chunk of change so if anyone owes anyone i’d say plastech owes chrysler.. but i am no lawyer and formulated these thoughts from articals here or posted here. AKA I’m being a parrot

  • avatar
    Badger

    Frantz – Plastech is a supplier to Chrysler. The parts flow from Plastech to Chrysler & the payment flows from Chrysler to Plastech. The OE’s will typically try to avoid paying suppliers as long as possible. That’s what the initial bail-out package was about. Instead of getting paid in 90 days for the crap they shipped out yesterday, Plastech wanted the money in 30 or 60 days. Chrysler said no, we’ll take our tools and go home and you’ll get your money in 90 days. Plastech said OK, we’re filing and you can try to get your tools from the judge. So… Chrysler still owes Plastech money.

    Anyone know whether this about the tools – the molds & dies (generally easy to move around) – or does Chrysler want the actual production machinery – stamping presses, injection molding machines, etc?

  • avatar

    Thanks for the clearification Badger. I have a question from that then. Do you know if the contract had a pay by req with it? I read chrysler had the right to pull their tooling (whatever they may entail) so did plastech have a legal standing requiring instant (or sooner) payment in such an event?

  • avatar
    Robert Schwartz

    NBK has it right. I have been there and done that. Like I said: “Creditor’s Prison”.

  • avatar
    Sid Vicious

    In general the automaker pays for and owns the “tooling” and the supplier owns the “facilities.” Tooling is stuff that forms/makes the parts. In this case likely plastic molds of various types, possibly metal stamping dies, etc. The facilities are the building and the machines that these tools run in. Automakers set it up this way 1) To minimize their investment and 2) To maintain control over the critical stuff in a situation like this. Owning the tooling also prevents the supplier from selling parts in the aftermarket (collision – think about how hard you get screwed when you buy parts at the stealership), overseas, to another OEM (think China.)

    I’m no lawyer, but it’s very clear that Chrysler owns the tooling. If they can get it out of the building 1) Who is going to run it for them (who has the right machines, the right capacity, the right knowledge) and 2) Just how screwed up is the tooling going to be (Oops – somebody dropped a wrench into the instrument panel mold ;)

    In a nutshell – in case a person were stupid enought to be thinking about buying a Chrysler, buy one on the lot today, cause the quality is going nowhere but down if this disease spreads.

  • avatar
    jaje

    Let’s put up these assumptions (note I have not read the filing – I’m lazy right now):

    1. We do not know who owns the title to the tooling equipment that is currently under the CH11 BK ( not Burger King…:( ) protection.

    2. We do not know the reason why Plastech specifically filed bankruptcy. Was it called by Plastech’s creditors or self intiated?

    Only few have “super-priority” to assets and money – that is not the title holders of equipment but the Fed Gov’t for taxes and the lawyers for their fees. Anyway, the BK court will decide whether they stay extends to the tooling equipment – and it might even though it is owned by Chrysler and the contracts they had in place will help define how it is treated. If it hurts the company’s ability to be a going concern after BK is over they may treat it as a co owned asset and hold it. BK also allows company’s to remain in business producing with all collection efforts stopped – Chysler can reissue the contract for the parts in order to give them business.

  • avatar
    Acd

    As someone who owns a 2006 300C, a 2005 Town and Country and a 2001 Concorde I’m very sad about the state of the ‘new’ Chrysler. What happened with the company of renegades from the 1990’s and the product teams that created the original Grand Cherokee, LH (Concorde and Intrepid) Dodge Ram and Chrysler Minivans? They were the most profitable car comapny before the Germans came blitzkrieging into Auburn Hills and sucked the life out of the company. My biggenst fear was that the Germans would suck the lifeblood out of Chrysler and it is pretty obvious that it happened. The only positive from the relationship seems to be the LX 300 and Charger platform and that is getting up on years now. Is Chrysler going to have the money to upgrade their products or are they going to become the new Studebaker, a car company that can afford to keep building their current products but can’t afford the R & D to remain competitive in the long term?

  • avatar
    gamper

    I am sure TTAC and some of you guys are salivating at the prospect of Chrysler having to file bankruptcy. I do happen to be a lawyer, and must say that there are a lot of well educated people on this site which have provided a good analysis. It is likely that Chrysler owns the tools and equipment in question, but Plastech leases the equipment from Chrysler. So Chrysler is a creditor and an account receivable in this scenerio. I suspect that Plastech operates some leased equipment from Chrysler that is also used to make parts for other OEMs. Chrysler may have had the right to terminate the lease with or without notice and remove the equipment. However, the automatic stay of the bankruptcy court will prevent it from happening now and will give Plastech the option to play with the lease terms in the meantime.

    It is likely Chrysler will be able to remove any tools, equipment that is only used to make Chrysler parts. Any tools and equipment that were subject to a security interest by Chrysler, but used to supply a number of Plastech’s customers will be tied up in the reorginization.

    One thing everyone seems to be overlooking is that the Bankruptcy Court has equitable powers and under the circumstances, even if Plastech retains posession of the tools/equipment, the court would likely order Plastech to resume production and shipment of parts to Chrysler with the previously negotiated terms until another arrangement can be worked out. The bankruptcy court isnt going to force Chrysler into bankruptcy.

  • avatar
    Vetteman

    If a major share of vehicle production is interupted Chryslers cash flow is interupted to that same degree. Money enters their coffers as soon as a vehicle gets built and shipped which starts the clock on flooring generally about the time the vehicle hits the dealership lot from the transport carrier. The factory gets their money when the dealer buys the car from them and the dealer gets paid when the retail buyer or end user buys the car. If every plant was shut I don’t think Chrysler could survive more than a week or two before seeking protection from the courts.

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