Judge Phillip Shefflerly has ruled that Chrysler does not get to strip parts supplier Plastech's factories of tooling, effectively forcing Chrysler to continue buying parts from Plastech. Shefferly's conceded that his decision may take a bite out of Chrysler's short term bottom line. But he decided that Chrysler has "numerous options" on the table, whereas Plastech would be staring at eight plant closures in the next nine months (were Chrysler to seize the tools). Shefferly's decision scrupulously avoids any indication on which party is "in the right." No word on the validity of (former Chrysler honcho-staffed) auditing firm BKK's findings of Plastech malfeasance. Nor any mention of the several bailout agreements, in which Chrysler forked-over cash for the rights to its Plastech tooling. So, is Plastech lucky or good? In any case, the ball's back in Chrysler's court, with big, expensive choices looming. Which begs an even more important question. With bankruptcy rulings favoring "successful reorganization" over financial commitments, how long before other suppliers take Chrysler down bankruptcy lane? By the same token, now that Cerberus management is crowing that it "doesn't have to be heroes with Chrysler," how long before Cerberus pulls the trigger on a Chrysler filing?
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I don’t think it’s Chrysler’s deathrattle you’re hearing, so don’t fret none, li’l missy.
It’s just the property rights of all Americans eroding– that’s all. Go back to your spending, there’s nothing more to see here.
After the Supreme Court let a city eminent domain people’s houses just to sell them to developers, I knew property rights were meaningless. This seems like more of a contract issue, though.
The 2.8 put their suppliers into this mess in the first place and deserve to be part of the “solution”. Years of demanding price reductions even in the face of huge raw materials cost increases has put scores of good companies in the dirt.
Bankruptcy essentially voids all prior contracts, so those little pieces of paper giving Chrysler the right to pull it’s tooling are just fire starters now.
Notice how none of Plastech’s other suppliers tried this nuclear option? Could it be because they are smarter than the self-styled GE-geniuses of Cerberus?
so we’re not deciding who’s right or wrong, but which *feels* more fair?
because it would just be *mean* to shut down 8 of 9 plastech facilities?
gimme a break.
i want america back.
The domestics put themselves in this position by telling suppliers they wanted cheaper parts, huh?
Is it not within the supplier’s reach to demand a higher price for their product during contract negotiations? If it isn’t, I can see your point.
I’m thinking it is, though– and Chrysler may have been able to negotiate a contract for it’s plastics through another supplier if they were looking for the cheapest bits and bobs. The problem is that Plastech said they could fill orders for parts at the pre-determined price, and signed a contract saying they could for a certain period of time.
They couldn’t, they got bailed-out, still couldn’t, and now Chrysler *has* to continue doing business with them via a court’s orders to be able to build a few of it’s cars at all.
That just doesn’t seem fair to me.
I read the opinion, and from what I could gather, the conclusion was as follows:
1. Chrysler “owns” the equipment, but Plastech has a “possession interest” in it, so it is part of property of the bankruptcy estate, kind of like the bank can’t immediately take your car if you just filed bankruptcy. There is also the question of whether some other Plastech creditors have security interests in the tooling.
2. Once it is determined tooling (or more clearly the possession of the tooling) is the property of the estate, the automatic stay applies meaning Chrysler can’t sue them except through the BR process.
3. There are certain ways to remove the automatic stay, but none of them apply at this early stage. This was because removing the equipment would surely push Plastech over the edge making effective reorganization impossible; Plastech’s other creditors would then be left in the cold. Again, at this early stage, that would be premature, things might change later.
4. From what I could tell, Chrysler will now have to negotiate entirely new terms to get their parts;
5. This will be a long process.
Breaking down the “who did what to whom” blow-by-blow is proving difficult, but if the BKK audit conveniently ignores some of Plastech’s legitimate price-point pressures this ruling could just be exactly what Chrysler deserves. Granted it’s a bit of a stretch, but motive and opportunity are both there.
Either way, the whole incident doesn’t exactly inspire confidence in Chrysler product (given that Plastech components are in nearly every model), so poisonous relations with suppliers always hurt the brand the worst.
“poisonous relations with suppliers ”
The former big three seem to have a Oh well whats the harm in having an F… You attitude with their suppliers.
They can’t seem to connect the dots between that attitude with their customers years ago and how it got them here now. I have no sympathy for Chrysler.
“s it not within the supplier’s reach to demand a higher price for their product during contract negotiations? If it isn’t, I can see your point.”
I don’t know anything about Chrysler’s dealing with Plastech, but I can say that companies do unfairly pressure suppliers into unprofitable situations.
For example, a supplier is contracted to build a part based on certain requirements for function, price, and schedule and bids the price accordingly. Lets call it a ball joint. Then a series of design changes create new requirements on that part, like added vehicle weight, and it then fails to meet its functional requirement, like to not have beyond a certain amount of lash at the end of durability testing. Now the supplier must update their design under schedule pressure and incur costs not intially planned for. The big 2.8 are notorious for sticking suppliers with the costs for issues like this and it happens all the time.
…and then they cry foul when suppliers need “bailouts” several times per year
Guy–
If that is the case, and it has happened for years on top of years, generation of product after generation of product– why have the suppliers not adapted and shortened contract length to safeguard against a manufacturer’s ever-changing part specifications?
I just can’t wrap my head around the concept that what’s yours is not yours if it’s in someone else’s best interests that they keep it after you let them use it when they’re working for you.
First: I told you so.
Second: Property rights advocates need to slowly undo the knots in their small clothes. This is not about property rights. It is about two persons with rights in the same property.
If we were talking about the family farm and the evil sub-prime lender, the conflict of rights could be the same, but your emotional reaction might be different.
Adjudicating the priority of competing claims is one of the basic tasks of our civil judicial system. The judge, after being briefed as to the facts and the law in this case, has rendered a decision. Interested parties who disagree with his decision may appeal it — in due course. Non parties, including me and you, only have something worthwhile to say, if they know the facts and the law.
I don’t know who is wrong or right in this case. But I do know that things weren’t always this way in Chrysler’s relationship with it’s suppliers:
http://www-personal.umich.edu/~afuah/cases/case3.html
All this went out the window after Daimler took over.
There are two things that will put the brakes on any rash of bankruptcy filings:
1. If a company that is not plausibly bankrupt tries to file under Chapter 11 in order to gain a tactical advantage in some dispute, the bankruptcy judge will be pissed off.
2. The owners of a plausibly bankrupt company that files for reorganization under Chapter 11 stand to lose their equity because the creditors will usually walk away with a good chunk, if not most or all, of the equity ownership in a company under reorganization. So even if the company manages to exit bankruptcy and go on to prosper, the original owners (read: shareholders) don’t benefit from this. For this reason, the shareholders are usually against the management calling for bankruptcy.
A good example of this sort of expropriation can be seen in England, where the government just took over the failing bank Northern Rock — a nationalization to forestall bankrutpcy. Employees continue to get paid; some will be layed off when an orderly downsizing is put together in the months ahead. Despositors still have access to their money. Creditors and bondholders are still paid. But the shareholders would be lucky to get pennies for shares that, until last week, were still trading for 90p each — well off their highs, but still a real amount of equity. If the new management team installed by the government restores the bank to health, the government will hold an IPO and keep the proceeds.
Now, if the owners are also the managers, they may be slightly more inclined to file, because even if they lose their equity (which by that point is not worth much), they will likely get to keep their day jobs (as managers), which at least comes with a healthy paycheck.