Major 2005 Automotive Supplier Bankruptcies

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Researched by Industrial Info Resources (Sugar Land, Texas). As 2005 came in, the automotive industry was already reeling from an overwhelming number of industry bankruptcies since 2000, a foreshadowing of the year to come. Citing severely pared down OEM production, the precipitously rising cost of raw materials, such as steel and plastic resins, unremitting pressure for cost shavings from OEMs, as well as the high costs of retirement and medical costs, one supplier after another has been forced to seek bankruptcy protection. Some of them will be able to turn themselves around, but many others will not.

In the case of two of the world’s largest suppliers, Delphi and Visteon (the latter of which, up to this time, has somehow managed to avoid bankruptcy proceedings), another factor in their failure was those companies’ spin-off agreements with their original parent companies. General Motors had spun off Delphi in 1999, and Ford had spun off Visteon in 2000, requiring those fledgling suppliers to pay OEM-level wages, which were double those of competing suppliers. Not a good start for any company.

In September 2004, Intermet (Troy, Michigan) had sought bankruptcy protection, blaming its financial problems on the cost of scrap steel, citing an almost three-fold rise in the cost of scrap in the previous year. Intermet has seventeen U.S. plants in which it manufactures components for the automotive, commercial vehicle, and industrial sectors. The company emerged from bankruptcy in November 2005.

British-based Oxford Automotive declared bankruptcy in December 2004, subsequently selling or walking away from all ten of its U.S. plants, including one then under construction in Alabama. Oxford emerged from bankruptcy in March 2005, with plans to operate solely within the European market.

Tower Automotive (OTC:TWRAQ)(Novi, Michigan), which makes auto body structures and suspension components for all major OEMs, filed for Chapter 11 protection in February 2005. Tower closed plants in Bowling Green, Kentucky (which supplies two other Tower facilities); Belcamp, Maryland (supplied GM’s Baltimore plant, which closed in May 2005); and Corydon, Indiana (which does welding and assembly for the Ford Explorer, which had seen falling sales), four months after declaring bankruptcy, laying off some 800 employees in the process. Tower also decided to close its Greenville, Michigan plant where the company was born. Tower, which manufactures body structures and assemblies, suspension modules and systems, and lower vehicle structures, is still trying to work out an acceptable agreement with the union.

In March 2005, BBi Enterprises (Bloomfield Hills, Michigan) (Private), a $120 million company with 780 employees, officially threw in the towel, citing new vehicle launches in 2004, double-digit raw materials price increases, and the negative impact of Canadian exchange rates. BBi supplies thermal and acoustic insulation components, including under-hood insulators and composite heat shield assemblies, as well as interior trim products, such as sunroof headliners, carpet assemblies, and front-dash insulators. The company was acquired out of bankruptcy in October 2005 by a $19 million cash infusion from Chicago-based Wynnchurch Capital Partners LP and Beachwood, Ohio-based Resilience Capital Partners LP.

Like other automotive suppliers, American Axle & Manufacturing (NYSE:AXL) (Detroit, Michigan) has struggled with the high cost of steel and other raw materials, as well as high labor costs, and it finally sought bankruptcy protection in March 2005. Production cuts at its major customer, General Motors, also hurt business. The company reported second-quarter earnings of $18.9 million in 2005, down dramatically from $55.3 million in 2004. AAM is a global leader in the manufacture, engineering, and design of driveline and drivetrain systems and related components and modules, chassis systems, and metal-formed products for light trucks, sport utility vehicles, and passenger cars. AAM has plants in Michigan, New York, and Ohio.

Collins & Aikman Corporation (NYSE:CKCRQ) (Troy, Michigan) is a global leader in cockpit modules and automotive floor and acoustic systems and a leading supplier of instrument panels, automotive fabric, plastic-based trim, and convertible top systems. It employs 23,000 and has over 80 manufacturing facilities in seventeen countries – 31 in the U.S. (three of those have multiple plants onsite); ten in Canada; and four in Mexico. In May of 2005, Collins & Aikman and substantially all of its U.S. operating subsidiaries filed voluntary petitions for reorganization under Chapter 11. Collins & Aikman, like most of the subject suppliers, is not going out of business. With the exception of Oxford Automotive, it intends to use the Chapter 11 process to restore its liquidity, improve its balance sheet, and restore its profitability. More recently, Wilbur Ross, late of International Steel Group fame, now of International Automotive Parts Group, has bought the debt of C&A’s European business and is reportedly considering buying some of its U.S. plants.

Ford (NYSE:F) (Dearborn, Michigan), in May 2005, agreed to take back workers and 24 plants from Visteon (NYSE:VC) (Dearborn, Michigan), to avoid Visteon’s filing for bankruptcy. Ford agreed in May 2005 to take back the plants and pay more than $1 billion in restructuring costs to help Visteon reduce its manufacturing costs. Visteon has lost money every year since its founding 2000, in part because of the costs for 17,400 Ford employees who work at Visteon under terms of the spin-off. Visteon reimburses Ford for their wages and benefits, which are about double those paid to factory workers at competitors.

Delphi (OTC:DPHIQ & DPHAQ ) (Troy, Michigan), which applied for Chapter 11 protection in October 2005, also has no intention of going out of business. Its Chapter 11 business reorganization is well-financed, well-planned, and well-organized, and will utilize the Chapter 11 process to preserve the value of the company and complete its transformation plan designed to resolve its existing legacy issues and the resulting high cost structure of its U.S. operations. Delphi designs, engineers, and manufactures a wide variety of components, integrated systems, and modules globally. Delphi is a world leader in mobile electronics and transportation components and systems technology. The company has 50,000 U.S. employees in 31 plants in thirteen states, including Michigan, Ohio, Alabama, and California. The company has 185,000 employees worldwide.

Dana Corporation (NYSE:DCNAQ) (Toledo, Ohio) plans to further wean itself off of its three major customers, Ford, General Motors, and DaimlerChrysler’s Chrysler Division, by seeking more business with customers like Toyota Motor Corporation (NYSE:TM) (Erlanger, Kentucky & Toyota, Aichi, Japan) and Nissan Motor Company (NASDAQ:NSANY) (Tokyo, Japan & Gardena, California – soon to be Nashville, Tennessee). Dana cited a jump in steel prices, a drop in SUV sales, and higher energy costs. The company announced in March of 2006 that it was seeking Chapter 11 protection, only a few days after it missed $21 million in interest payments on two of its senior secured notes. The general downturn in the auto parts industry has made it tougher for the company to borrow money outside of bankruptcy. The company has about 50 major facilities in the U.S., with most centered in Ohio, Michigan, Indiana, and Kentucky. A leading supplier of axle, driveshaft, engine, frame, chassis, and transmission technologies, Dana employs 46,000 people in 28 countries. The company reported sales of $9.1 billion in 2004. Institutional investors now own 84% of Dana's stock, up from 77% or less a year ago, which is not a good sign for individual investors, and not particularly healthy for Dana. The company’s stock plunged from $17 to less than $2. Dana does, however, have a “poison pill” stipulation to ward off hostile takeover attempts, which is triggered when a bidder acquires more than 15% of Dana stock, allowing other shareholders to buy company stock at half price, and thus sharply diluting the hostile acquirer's stock and forcing it to buy even more at market price.

These companies represent the larger companies in a struggling industry, and there will surely be others during 2006 and 2007, pending the possible – some say probable – bankruptcies of General Motors and Ford. Meanwhile, the fates of those suppliers serving those plants Ford and General Motors plan to close between 2006 and 2010 are also in question. Industrialinfo.com maintains a continuously updated Automotive Database, in which company name changes, mergers, and acquisition are tracked. Contact Industrialinfo.com’s Member Center at 1-800-762-3361 for details.

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