The Wall Street Journal-20080206-Chrysler- Supplier Reach Interim Deal
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Chrysler, Supplier Reach Interim Deal
Full Text (414 words)Chrysler LLC reached a temporary solution to a dispute with a financially struggling supplier and resumed production at four auto plants it had idled Monday because of a shortage of parts.
Under the agreement, Plastech Engineered Products Inc., which filed for bankruptcy protection last week, will ship parts to Chrysler until Feb. 15 while a court decides whether Chrysler is allowed to reclaim its tooling from Plastech and take its business to new suppliers.
Chrysler's bid to walk away from Plastech is part of a new get-tough strategy the auto maker feels it can enforce now that it is controlled by private-equity group Cerberus Capital Management LP. Both General Motors Corp. and Ford Motor Co. have agreed to give Plastech financial help.
As a closely held company, Chrysler is more focused on managing cash flow than earnings, and showed it is willing to shut plants down and suffer a drop in revenue to avoid spending money to prop up a supplier in bankruptcy court.
That may help Chrysler conserve cash in the short term, but in the long run could hurt its reputation with other suppliers and make it hard for Chrysler to negotiate the most favorable prices and service from them.
The dispute arose last week when Plastech was scrambling to get financial help from its biggest customers. On Friday Chrysler informed the maker of plastic interior parts that it was ending their supply agreement and wanted to reclaim tooling that is used in Plastech plants but owned by Chrysler.
Plastech General Counsel Kelvin Scott said yesterday at a bankruptcy-court hearing that Chrysler's actions forced the Chapter 11 filing. "Otherwise, we had no intention of filing Friday night," he told reporters after the hearing.
An attorney for Chrysler told U.S. Bankruptcy Judge Phillip Shefferly, "We vehemently disagree we caused this bankruptcy."
On Monday, Judge Shefferly urged Chrysler and Plastech to try to reach an agreement while he considers whether Plastech must return Chrysler's tooling right away. A hearing on the matter is scheduled for Feb. 13. The companies announced the temporary deal yesterday.
Chrysler had idled production at four assembly plants in Michigan, Illinois, Ohio and Delaware. Shutting down the plants helps Chrysler somewhat. Many of the vehicles these plants produce, such as the Chrysler Sebring sedan and Jeep Compass, are slow sellers, and ample stocks remain in the car maker's inventory.
Production for all of Plastech's other customers has continued without interruption. Plastech's other customers include GM, Ford, and Johnson Controls Inc.
