Chrysler tries to keep suppliers afloat
05-16-2009, 11:40 AM
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Chrysler tries to keep suppliers afloat
Chrysler LLC wants to transfer the vast majority of its supply base to a new company that will be formed from its proposed alliance with Fiat SpA.
The automaker plans to use much of the $4.1 billion in financing that is keeping it going during bankruptcy to pay outstanding bills to parts makers and complete the transfers quickly.
Chrysler is working feverishly to emerge from Chapter 11 bankruptcy before that funding, known as debtor-in-possession financing, expires around the end of June, 60 days after the company filed for bankruptcy on April 30.
On Friday, Chrysler filed with the bankruptcy court an initial list of 1,200 suppliers it wants to continue working with when the new company emerges from Chapter 11 this summer. Chrysler has about 1,300 suppliers, including hundreds in Michigan, and spends $36 billion annually.
The documents list how much Chrysler believes it owed each company before filing for bankruptcy. While such liabilities usually are wiped out in bankruptcy, Chrysler wants the debts paid off before the new Chrysler-Fiat assumes the individual contracts. The automaker is offering to pay 40 percent now and 60 percent post-bankruptcy.
The list is not yet complete. Priority was given to production suppliers for when Chrysler starts building vehicles again. Nonproduction suppliers will be added, as well as some bigger suppliers with more complicated accounts that are still being sorted out.
The list must be finalized before Chrysler exits bankruptcy.
Suppliers were sent letters Friday with forms they must complete to accept the terms. Once returned, payment should be within days, Chrysler officials said. Failure to object assumes agreement.
Objections must be filed within 10 days and a hearing has been set for June 4 before U.S. Bankruptcy Judge Arthur Gonzalez to settle any disputes.
Tom Spillane, a bankruptcy lawyer with Foley & Lardner LLP in Detroit, said suppliers he represents are happy to be on the list, and are now going over the figures. But there are indications that some of Chrysler’s figures could fall short.
In some cases it could be that the total owed to a company does not account for work done by a subsidiary or may not reflect the cost of tooling that has not yet been audited by Chrysler and reflected in the invoice. Those who file objections face delayed payment, Spillane said.
Chrysler also is asking suppliers to stop participating in a U.S. Treasury Department supplier aid program that provides $1.5 billion in funding to guarantee or speed up payments for Chrysler and General Motors Corp. suppliers, even if the automakers are in bankruptcy. To participate, suppliers had to pay a fee of up to 3 percent of the bills.
Scott Garberding, Chrysler’s chief purchasing officer, met with suppliers Thursday and told them they will get a better deal if Chrysler pays them.
Suppliers also learned that Chrysler will no longer approve invoices to be paid under the Treasury program.
Spillane said that policy is angering some suppliers and cuts off aid for companies not yet on Chrysler’s list.
Treasury money is paid in one lump sum whereas Chrysler will not pay the final 60 percent until the sale of all assets to the new Fiat-run automaker is complete. A hearing to finalize that sale is set for May 27.
“Up to this point, the Supplier Support Program has served a critical function of ensuring suppliers’ receivables will be paid,” Garberding said, but suppliers will be “economically better off being paid through the bankruptcy court process.”
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The automaker plans to use much of the $4.1 billion in financing that is keeping it going during bankruptcy to pay outstanding bills to parts makers and complete the transfers quickly.
Chrysler is working feverishly to emerge from Chapter 11 bankruptcy before that funding, known as debtor-in-possession financing, expires around the end of June, 60 days after the company filed for bankruptcy on April 30.
On Friday, Chrysler filed with the bankruptcy court an initial list of 1,200 suppliers it wants to continue working with when the new company emerges from Chapter 11 this summer. Chrysler has about 1,300 suppliers, including hundreds in Michigan, and spends $36 billion annually.
The documents list how much Chrysler believes it owed each company before filing for bankruptcy. While such liabilities usually are wiped out in bankruptcy, Chrysler wants the debts paid off before the new Chrysler-Fiat assumes the individual contracts. The automaker is offering to pay 40 percent now and 60 percent post-bankruptcy.
The list is not yet complete. Priority was given to production suppliers for when Chrysler starts building vehicles again. Nonproduction suppliers will be added, as well as some bigger suppliers with more complicated accounts that are still being sorted out.
The list must be finalized before Chrysler exits bankruptcy.
Suppliers were sent letters Friday with forms they must complete to accept the terms. Once returned, payment should be within days, Chrysler officials said. Failure to object assumes agreement.
Objections must be filed within 10 days and a hearing has been set for June 4 before U.S. Bankruptcy Judge Arthur Gonzalez to settle any disputes.
Tom Spillane, a bankruptcy lawyer with Foley & Lardner LLP in Detroit, said suppliers he represents are happy to be on the list, and are now going over the figures. But there are indications that some of Chrysler’s figures could fall short.
In some cases it could be that the total owed to a company does not account for work done by a subsidiary or may not reflect the cost of tooling that has not yet been audited by Chrysler and reflected in the invoice. Those who file objections face delayed payment, Spillane said.
Chrysler also is asking suppliers to stop participating in a U.S. Treasury Department supplier aid program that provides $1.5 billion in funding to guarantee or speed up payments for Chrysler and General Motors Corp. suppliers, even if the automakers are in bankruptcy. To participate, suppliers had to pay a fee of up to 3 percent of the bills.
Scott Garberding, Chrysler’s chief purchasing officer, met with suppliers Thursday and told them they will get a better deal if Chrysler pays them.
Suppliers also learned that Chrysler will no longer approve invoices to be paid under the Treasury program.
Spillane said that policy is angering some suppliers and cuts off aid for companies not yet on Chrysler’s list.
Treasury money is paid in one lump sum whereas Chrysler will not pay the final 60 percent until the sale of all assets to the new Fiat-run automaker is complete. A hearing to finalize that sale is set for May 27.
“Up to this point, the Supplier Support Program has served a critical function of ensuring suppliers’ receivables will be paid,” Garberding said, but suppliers will be “economically better off being paid through the bankruptcy court process.”
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