UpdateChrysler bankruptcy to shake US supplier chain

30 April 2009 23:55  [Source: ICIS news]

US Chrysler to file for bankruptcy(Recasts throughout, adds Plante & Moran comments, paragraphs 6-7)

HOUSTON (ICIS news)--With US auto manufacturer Chrysler wrestling with bankruptcy and new owners, the question for automotive suppliers will be when - not if - change will come, sources said on Thursday.

Chrysler, the third largest US automaker and a major chemical consumer, filed for protection in the US Bankruptcy Court in New York. Most of its plants would be idled for the 30-60 days the company expects to need to restructure and untangle its debt burden, the company said. The shutdowns will begin on Monday.

In addition, Italian car maker Fiat will acquire a 20% stake in Chrysler after the Auburn Hills, Michigan-based automaker emerges from reorganisation. Fiat will have the option of buying an additional 15% if certain benchmarks are met, according to the White House. This would create the sixth-largest global automaker.

“It's a partnership that will save more than 30,000 jobs at Chrysler, and tens of thousands of jobs at suppliers, dealers and other businesses that rely on this company,” President Barack Obama said in announcing the plan, which his administration helped broker.

Fiat will take part in running Chrysler, provide technical operations and operate at least one vehicle production line in a Chrysler plant, White House officials said.

Fiat will almost certainly push for Chrysler to stop producing platforms for its less popular vehicles, said Jeff Mengel, partner at automotive consultants Plante & Moran. The timing of those cuts will be key for suppliers, he said.

“The question is, will they cease production of those platforms in 2010,” he said. “If they cease production at a later date, the suppliers can be somewhat prepared for that.”

A few US plastics suppliers said they expect the partnership to stabilise the market in the short term, although at least one analyst said it could also signal a shift of business to European suppliers in the long run.

“The supply chain is going to shift,” said Bob Eller, president of Robert Eller Associates. “It would represent the further input of European technology and polypropylene compounders into the North American supply chain. And it would continue the shift toward small cars in the North American market, particularly with the Fiat 500.”

This would give European plastic majors such as SABIC and Borealis more of a footprint in North American markets, Eller said.

Danish plastics maker Borealis has seven polypropylene (PP) plants in Europe with an aggregate capacity of 1.8m tonnes/year, according to ICIS plants and projects. SABIC has two European plants with combined capacity of 1.1m tonnes/year. 

Chrysler failed to reach an agreement with its major debt holders before today’s deadline for it to present a restructuring plan to the Obama administration, according to news reports quoting administration officials.

White House officials said they expect bankruptcy proceedings to last up to two months, with Chrysler seeking authority at its “first day” hearing to continue paying suppliers in the ordinary course.

The proceedings will have little immediate impact on US plastics suppliers, but the long-term effects could be harder to predict, analysts said.

“Who knows what the impact will be on volumes right away?” said Peter Mooney of Plastics Custom Research Services. “Sometimes in bankruptcy, things go on as normal. All those plants won’t shut down right away.”

The domestic Big Three automakers - General Motors (GM), Ford Motor Company and Chrysler - have struggled as demand for their products plunged 19%, or 3m units, to 13.2m units in 2008. Sales at Chrysler, the smallest of the three, were down 55% for the year, according to information from CSM Worldwide.

Automobiles are an important chemical end market, in that each has an average of $2,200 (€1,650) worth of chemistry, according to the American Chemistry Council (ACC). Automobile parts include rubber hoses, plastic dashboards, catalysts, fibres, adhesives and coatings.

Ford said Chyrlser’s bankruptcy would not distrupt its own operations. 

(Additional reporting by Ben DuBose)

($1 = €0.75)

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By: Ben Lefebvre
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