Conti and other suppliers win payments from Chrysler

ERJ staff report (AN)

Neil Roland, Robert Sherefkin, Automotive News

Chrysler LLC plans to transfer at least 92 percent of its supplier contracts to the new company to emerge from bankruptcy in an alliance with Fiat S.p.A. and pay them a total of more than $875 million, according to documents released today. Continental AG is one of the biggest winners in the deal.

Chrysler will start notifying 1200 Tier 1 suppliers today of its intent to pay them 100 percent of what they are due for parts delivered before the company's April 30 bankruptcy filing, a Chrysler spokesman said in an interview.

The biggest recipients among the partial list released today in bankruptcy court will be Continental AG of Germany and Johnson Controls of Milwaukee, each with contracts worth about $70 million; Magna International's unit in Troy, Michigan, $63 million; Fiat, of Italy, $45 million; Hyundai Mobis of Korea, $38.2 million, and Germersheim Spare Parts of Germany, $37.8 million.

"This is very good news for suppliers and Chrysler," the company's purchasing chief Scott Garberding said in a statement. "The terms are fair and far better than the treatment trade creditors usually get in a bankruptcy case and provide a mechanism for quick resolution of all open issues."

Chrysler has as many as 1300 Tier 1 suppliers, so those to be notified constitute at least 92 percent of the total.

A list of about two-thirds of the suppliers being notified was filed in bankruptcy court last week. A tally of the individual contracts yields a total of more than $875 million.

The payments will come from federal debtor-in-possession financing, the Chrysler spokesman said. In the last week, Chrysler received the first installment of a total of $4.1 billion pledged by the Treasury Department, he said.

'Stability' for the supply base

Chrysler's supplier plan "should provide an important measure of certainty and stability to America's auto supply base," an administration official said today. "This encouraging development in the bankruptcy process should bolster confidence that the Chrysler-Fiat alliance will emerge from bankruptcy quickly and in a position of strength."

The companies that will not be receiving notification letters, the Chrysler spokesman said, fall into three categories: those who are being dropped as suppliers, those who provided items for administrative offices rather than vehicle production, and those whose contracts are so complex they require individual negotiation.

In an April 30 filing, Chrysler listed ad agency BBDO Detroit of Troy, Michigan, as one of its largest creditors with a $58 million claim.

BBDO was not listed in today's filing, and it isn't clear whether the agency is on Chrysler's list of suppliers to be paid. BBDO Detroit officials did not immediately respond to requests for comment.

The Chrysler letters, to be delivered by e-mail and overnight mail, will tell suppliers they will get the first 40 percent of their payment in the next four weeks, the spokesman said.

The remainder will be paid when the sale of Chrysler assets to Fiat is closed, he said.

Suppliers who want to dispute the company's offer can file an objection in bankruptcy court, the spokesman said. A June 4 hearing has been scheduled for objections, Chrysler's filing said.

Daniel Sharkey, a suppliers' attorney, questioned the Chrysler spokesman's representation that the offers represent 100 percent of what suppliers are due.

"I have had several clients who supply to Chrysler tell me that the 'cure' amount was significantly below what they felt was owed," said Sharkey, a suburban Detroit attorney with Brooks, Wilkins, Sharkey & Turco. The "cure" is the payment offered by the company.

"The bottom line is that until suppliers know how the amount was computed and compare it to their own records, they will not know whether the cure amount listed is a full offer, or a compromise offer."

From Automotive News (A Crain publication)

Listing of press releases from Chrysler