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Chrysler, Plastech may have interim deal

  Bankruptcy  -   POSTED: 2008/02/05 13:04

Negotiators for Chrysler LLC and a troubled parts supplier were trying to end a dispute that shut down or canceled a shift at five Chrysler plants and threatened to idle all 14 of the automaker's assembly facilities.

Plastech Engineered Products Inc., which supplies Chrysler with about 500 plastic interior, exterior and powertrain components for nearly all of its vehicles, filed for Chapter 11 bankruptcy protection on Friday after the automaker told the supplier it was seeking other sources for the parts.

The dispute cut the flow of parts from the Dearborn-based Plastech to Chrysler, and the company on Monday was forced to shut down four factories and cut a shift at a fifth.

Chrysler sued Plastech in U.S. Bankruptcy Court in Detroit, and the both sides were in court Monday but were unable to resolve the matter, a person briefed on the negotiations said. Talks went into the evening and recessed until Tuesday morning, when further court action was scheduled, said the person, who requested anonymity because the talks are confidential.

Chrysler is seeking an immediate resumption of parts production as well as the tools to make the parts, which it owns. Without the tools, Chrysler said in its lawsuit that it eventually will have to cease production of vehicles systemwide.

The automaker terminated its contracts with Plastech on Friday.

Plastech's contracts with the automaker were worth about $200 million, Plastech spokesman Kelvin Scott said. Plastech does about $1.3 billion in total business.

"We are continuing to supply parts to our other customers, including Ford and GM," he said.

One industry analyst said the production slowdown may be short because Chrysler should have little trouble finding new companies to replace Plastech.

Faced with stiff competition and a shrinking market, many suppliers are willing to take on work if it means getting contracts, said Craig Fitzgerald, a partner in Plante & Moran's Strategy and Global Services Group.

In its lawsuit filed Friday, Chrysler claimed Plastech no longer can meet its production demands.

On Monday Chrysler temporarily closed the four assembly plants and shut down one shift at another, affecting about 10,500 workers.

Plants closed are in Sterling Heights, Mich.; Newark, Del.; Toledo, Ohio; and Belvidere, Ill., while the second shift at Toledo Supplier Park in Toledo was dismissed, the company said.

Of the vehicles made at the affected factories, the Dodge Durango sport utility vehicle had the lowest supply in January, at 46 days, according to Wards AutoInfoBank. The largest supply is the Jeep Wrangler, at 117 days.

Although Chrysler has an inventory of vehicles made by the plants, it will not benefit from any plant closures, said Aaron Bragman, an auto industry analyst for the consulting company Global Insight.

"When a plant is idle, you're not making any money. You've got people standing around, so it's just a cost," he said.

Auto companies want enough inventory to have a buffer and don't want it to become depleted, Bragman said. Chrysler has reduced its inventory substantially since it became bloated last year, he said.

Even if Chrysler lays off workers, they would still get most of their pay under their contract with the United Auto Workers.

Overall, the company had 413,874 vehicles in its inventory last month, a 75-day supply, according to Ward's.

The shutdowns are having a ripple effect as auto parts maker Dana Corp. canceled Monday night's second-shift at its modules plant in Toledo. About 150 people work at the plant, which supplies drivetrain parts for Chrysler's Toledo Jeep plant.

Employees at the Sterling Heights stamping plant were sent home early Friday night and after four hours of work Monday, union steward Russell Phillips said.

"We have no extra stock," said Phillips, who adds that Chrysler works on a "just-in-time" policy for parts delivery.

"Most of (the workers) are saying 'this is what they get for not wanting to keep stock in the house,'" Phillips said.

Chrysler employees will be notified of return-to-work schedules from plant officials or through local media, the automaker said.

Plastech has 36 facilities and 7,600 employees in the United States and Canada.

Engine covers, grill panels, moldings, metal stampings, door panels, floor consoles and safety restraint system components are some of the parts Plastech supplies to Chrysler, Ford Motor Co., General Motors Corp. and Toyota Motor Corp., according to the company's Web site.

Ford was still getting parts from Plastech and was unaffected by the dispute, Ford President of the Americas Mark Fields told reporters Monday night.

Chrysler's work shutdown should last no more than a week or two, Fitzgerald said.

"I think they will not have any problems filling the void," he said. "There is a lot of excess capacity. Chrysler would do everything it can to get up and running."

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