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Chrysler asks bankruptcy court for Plastech relief

DETROIT (Reuters) - Chrysler LLC asked a federal judge on Wednesday to let it take equipment and its business from bankrupt auto parts supplier Plastech Engineered Products Inc, saying bail-out options under discussion would have cost the money-losing automaker tens of millions of dollars.

The Chrysler LLC logo is seen during a news conference at Chrysler Headquarters in Auburn Hills, Michigan August 6, 2007. Chrysler asked a federal judge on Wednesday to let it take equipment and its business from bankrupt auto parts supplier Plastech Engineered Products Inc, saying bail-out options under discussion would have cost the money-losing automaker tens of millions of dollars. REUTERS/Rebecca Cook

Chrysler is seeking approval from U.S. Bankruptcy Court in Detroit to take tooling from Dearborn, Michigan-based Plastech and shift its business to other suppliers, a move that could cause the parts supplier to fail, Plastech’s attorney said.

The dispute between Chrysler and Plastech playing out in bankruptcy court briefly shut down five U.S. plants operated by the No. 3 U.S. automaker last week and hinges on the molds and dies that the supplier uses to make parts for nearly all Chrysler vehicles.

The legal skirmish between Chrysler and Plastech also comes amid concern that a weak U.S. economy might put pressure on auto sales throughout 2008 with the industry widely expected to suffer through a third year of declining sales.

Plastech, which makes components for vehicle interiors, filed for bankruptcy this month with $488 million in debt, making it one of several prominent suppliers forced into a restructuring by rising material costs, shrinking vehicle production volumes and pressure for price cuts.

Chrysler lost about $1.6 billion in 2007 and had already supported Plastech in February 2007 and again in January 2008 before the supplier’s bankruptcy filing, said Doug Doran, Chrysler’s director of interior purchasing.

Plastech sought another $10 million from Chrysler to keep it operating at the end of January and other Plastech customers had discussed an alternative that would have cost Chrysler up to $100 million more over four years, Doran said.

Meanwhile, lawyers for General Motors Corp GM.N, Ford Motor Co F.N and Johnson Controls Inc JCI.N, all Plastech customers, told the court the companies supported the principle that Chrysler had a valid claim to recover its tools.

But Plastech lawyer Gregg Galardi said allowing Chrysler to shift the tools could prompt the company’s collapse.

“What you have is a company that will fail if this lift-stay, in the first month of the case, is granted,” Galardi said of Chrysler’s request.

Galardi said Chrysler gave up its right to secure the tools when it signed a long-term agreement in February 2007 that runs through 2008, a position Chrysler disputes.

Plastech has been a supplier to Chrysler for more than 10 years. Chrysler accounts for about $200 million of its annual revenue, or 13 percent of its business.

Chrysler’s Doran said Plastech’s largest customers, led by Johnson Controls, had discussed alternatives to the Plastech bail-out requests in January. Plastech had said it sought aid from customers to keep it out of bankruptcy for another 60 days.

The Johnson Controls alternative would have cost Chrysler about $60 million in 2008 and more than $100 million over four years, Doran said.

Doran said Chrysler had already paid Plastech about $167 million for the tools and owes the supplier about $13.4 million. Chrysler is offering to put the $13.4 million in a trust if it is granted access to the tools.

Plastech produces about 360 parts for Chrysler using nearly 3,000 tools that Chrysler is seeking, Doran said. The parts are supplied to nearly every vehicle Chrysler produces, including the Jeep Wrangler and the Dodge Ram pickup truck.

Mike Hammer, an attorney representing Chrysler, described the $6.9 million Chrysler paid to Plastech in February 2007 as “an outright gift” and $10.7 million paid in mid-January as a “short-term band-aid.”

“It’s obvious the debtor cannot perform without an accommodation.” Hammer said. “They need customer accommodation to survive.”

Editing by Braden Reddall

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