Jeep Plant Hit By Supplier Shutdown
Chrysler hopes for no delay in launch of new Jeep Wrangler.
by Paul A. Eisenstein (2006-02-06)
The unexpected shutdown of Haden Prism LLC threatens to disrupt the launch of the next-generation Jeep Wrangler at Chrysler Corp.'s new assembly plant in Toledo, though Chrysler lawyers were working overtime to keep things on track at the groundbreaking new operation.
The Auburn Hills, Mich.-based Haden is one of three key suppliers central to the operation of Chrysler's new assembly line. Instead of owning and operating the plant on its own, the automaker partnered with the suppliers, who collectively invested a sizable share of the project's total cost, and will each operate a specific portion of the facility.
Kuka Group is currently finishing work on the body shop, Hyundai Mobis will assemble the Wrangler chassis line, while Haden was supposed to be setting up the paint shop. All three suppliers were supposed to be ready to go when the first "S1" pilot vehicles were to roll down the assembly line on February 27.
When Haden's 60 employees reported for work on Friday, however, they were told to go home. The 200,000 square-foot paint facility was being padlocked by the local sheriff due to Haden's Chapter 7 bankruptcy filing.
More than two-dozen U.S. auto suppliers are currently in default, having filed under the more lenient Chapter 11 of the bankruptcy code. That permits them to continue operating while they attempt to sort out their finances. But under Chapter 7, a company has declared itself insolvent and unable to continue operating. In the case of Haden, creditors moved in quickly to protect potential assets.
Without the paint shop, the new assembly plant would be unable to operate. But Chrysler spokesman Jason Vines asserted that "the impact (of Haden's bankruptcy) is basically zero," and that the automaker will move to assume control of Haden's operation as quickly as possible.
Another company source noted that under its contract with the three suppliers, Chrysler reserved the right to take over any of the operations in the event of an emergency such as this. But it is likely to take some legal wrangling before the paint shop reopens, and it is unclear whether Chrysler might have to delay the launch of production. Typically, there is padding in the pilot schedule, so assuming things are resolved quickly, the actual public debut of the 2007 Wrangler could go off as planned.
Toledo at close range
But there's little question, several sources agreed, that Chrysler will have to take a close look at the Toledo project, especially if it hopes to copy the approach with other new facilities in the future. It's not that company officials didn't know of the potential risks going into the joint venture. The challenge, said Chrysler CEO Tom LaSorda, who spearheaded the effort, is "finding comfort in a state of perpetual transformation."
But LaSorda insisted that the risk was more than worth the reward, since the unique approach to the Toledo plant promised to reduce Chrysler's up-front investment, as well as long-term costs, since it reduces the number of workers on the automaker's own payroll.
The entire Wrangler project is expected to cost Chrysler, a subsidiary of DaimlerChrysler AG, about $2.1 billion. That includes development of the new SUV, which will account for more than half of the total figure. The three partners will ante up about $300 million towards the cost of the Toledo plant itself, Chrysler reported in August 2004, when the project was announced.
The strategy is more aggressive than that taken by other automakers, including Ford Motor Co. and Nissan. Ford has set up a supplier park adjacent to its rebuilt Chicago assembly line, where parts makers produce goods, such as seats, as they are needed on the line. Suppliers actually operate within the confines of Nissan's assembly plant in Canton, Miss.
While Chrysler is likely to step in and take over Haden's portion of the new Jeep plant, the automaker intends to stick with its original plan. It is reportedly already in discussions with the German supplier, Durr Industries. Durr was originally one of the lead bidders for the Toledo project, but lost to Haden. Among the major investors in the now-bankrupt firm was Dennis Pawley, one-time head of manufacturing at Chrysler.
