Posted by: David Welch on February 7, 2008
The new Chrysler is playing a dangerous game. When the carmaker’s new management decided to cancel contracts with troubled Plastech Engineered Products—which makes dashboard and cabin parts for Chrysler and others—it sent the company reeling into bankruptcy. Chrysler CEO Robert Nardelli told reporters at the Chicago Auto Show this week that when a supplier has trouble in any aspect of their business, the company has to react to protect its interests. And in this case, Chrysler is done with Plastech, says a report in the Detroit News.
Detroit’s auto makers have long paid a price for being too harsh on their suppliers. When they squeezed the blood out of them with price cuts, suppliers cut corners to make the cost demands and quality suffered. Parts makers have said for years that they would shop the latest technology to the domestic car companies last because they feared that the Big Three would shop it out the back door to a competing parts firm and give away their edge. Chrysler, whose supplier relations made huge strides under former company President Thomas T. Stallkamp in the late ‘90s, risks turning the clock back. The word around town already is that suppliers are watching Chrysler’s move with Plastech and viewing it as a harbinger of things to come.
Now let’s be fair. It’s easy to see why Chrysler is leery of bailing out struggling parts companies. A source close to the company said Chrysler spent some $150 million last year helping suppliers in need. And for the most part they didn’t see a return. A big chunk of that money went to helping bankrupt Collins & Aikman. The bailout didn’t work and Chrysler ended up having to pay more costs to get a new parts company to make many of those pieces anyway.
With a cash-minded owner like Cerberus Capital Management, doling out cash for someone else’s problems may seem less palatable. Finding a new parts company may even make sense. But in the case of Plastech, Chrysler could have kept the existing contracts until the company finished its plan to stay out of bankruptcy court. Suppliers may start thinking that Chrysler is more interested in cold-blooded costs than building relationships. And the parts makers will react in kind.