Chrysler and Plastech reach interim deal

DETROIT (Reuters) - Chrysler LLC and bankrupt supplier Plastech Engineered Products Inc reached an interim deal that would allow the U.S. automaker to resume production at four idled plants and avoid closing all of its assembly operations, a lawyer for Plastech said on Tuesday.

Gregg Galardi, speaking at a hearing in U.S. Bankruptcy Court in Detroit, told the judge a deal has been reached that runs through February 15.

Chrysler closed four assembly plants on Monday and had said more shutdowns could quickly follow because it was no longer receiving parts from Plastech.

"We have made significant progress in a number of areas," said Galardi, who was flanked by Chrysler attorney Michael Hammer.

Galardi said the deal had been presented to Plastech creditors.

"Some are happy, some are not so happy," but all parties had agreed to it, he said.

He said Plastech would resume production of Chrysler parts during the second or third shift at the company's plants on Tuesday. Chrysler said it would resume production at its affected plants during the second shift on Tuesday.

A hearing has been scheduled for February 13 for arguments on whether Chrysler can seize tooling equipment at Plastech plants that the automaker says it owns. Plastech says ownership of the equipment is in question and that its removal would affect other customers.

Bankruptcy Judge Phillip Shefferly on Monday had encouraged the companies' attorneys to work out an agreement.

What the future holds for Plastech probably depends on its other customers as Chrysler likely will look ultimately to shift that work to a different supplier, Fitch Ratings analyst Mark Oline said.

"Their customers control the supply contracts and they can either work with Plastech to create a restructuring program, or they can divert them to another supplier, but that generally takes time," he said.

Plastech's other customers include General Motors Corp GM.N, Ford Motor Co (F.N) and Toyota Motor Corp (7203.T) -- all of which had said they were not affected by the dispute and bankruptcy -- as well as Johnson Controls Inc (JCI.N).

Events such as Plastech's bankruptcy "could result in potential liabilities or additional costs to the company to ensure uninterrupted supply to its customers," Johnson Controls said Tuesday in a filing with the U.S. Securities and Exchange Commission.

Johnson Controls described Plastech as a vendor to its North American auto interiors business and said the downturn in the North American auto market is likely to impact the financial solvency of certain vendors.

A Plastech attorney said in court that Johnson Controls accounted for $711 million of Plastech's revenue in 2007, making it by far the biggest direct customer.

Chrysler, controlled by Cerberus Capital Management, terminated its contracts with Plastech last week due to the supplier's financial struggles. Plastech filed for bankruptcy on Friday to stop Chrysler from taking the disputed tooling equipment from its plants.

Chrysler's plants operate on a "just-in-time" basis, under which parts are shipped as needed, so any disruption of supplies is felt immediately.

Plastech, a privately held, minority-owned company based in Dearborn, Michigan, provides Chrysler with hundreds of parts -- including door panels, floor consoles and engine covers -- that are used in most of Chrysler's almost 2.3 million vehicles assembled annually.

The idled Chrysler plants are located in Rockford, Illinois; Newark, Delaware; Sterling Heights, Michigan; and Toledo, Ohio. A supplier park in Toledo -- a cluster of several auto parts suppliers in one location -- also had been affected.

Plastech, founded in 1988, has 35 facilities and 7,700 employees in the United States and Canada. It said its liquidity had been reduced due to the downturn in the domestic auto market and rising commodity costs, according to court documents.

It had hired Conway, MacKenzie & Dunleavy as financial advisers and Lazard Freres & Co LLC as investment bankers to explore options, including the sale of some or all of its business, according to court documents.

(Reporting by Nick Carey, Ben Klayman and David Bailey; editing by Andre Grenon, Leslie Gevirtz, Gary Hill)