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Dispute with supplier idles 14 Chrysler plants

/ Source: The Associated Press

A dispute between Chrysler LLC and parts supplier Plastech Engineered Products Inc. forced Chrysler to shut down or cancel a shift at five factories Monday, and the automaker said it could idle all 14 of its assembly factories.

Plastech supplies Chrysler with about 500 plastic interior, exterior and powertrain components for nearly all of its vehicles, according to a lawsuit Chrysler filed Friday in U.S. Bankruptcy Court in Detroit.

The automaker is seeking the tools used by Plastech, which are owned by Chrysler, to make the components. Without the tools, Chrysler says it eventually will have to cease production of vehicles systemwide. Chrysler terminated its contracts with the Dearborn-based supplier on Friday, before Plastech filed for Chapter 11 bankruptcy protection.

"It takes us out of their computerized system. We couldn't ship anything," Plastech spokesman Kelvin Scott said. "We're willing to do it if they would work with us, but up to now, they have not."

Plastech's contracts with the automaker were worth about $200 million, he 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.

"Suppliers in the tier one to tier four level are severely challenged," Fitzgerald said Monday. "Production values are declining, there is high debt, weak earnings and cash flow, and difficulty in getting credit."

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

Monday morning, Chrysler announced plans to temporarily close four assembly plants and shut down one shift at another, affecting about 10,500 workers.

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

Of the vehicles made at the four factories to be shut down, 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 is not planning any plant closures or shutdowns related to Plastech, Ford spokesman Todd Nissen said.

"We are working with Plastech to ensure there is an adequate supply of parts to our facilities," Nissen said.

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."