Auto parts bankruptcies -- particularly those filed by small and midsized companies -- tend to follow the same formula. When a supplier begins struggling, it will sign both an access agreement and an accommodation deal with one or more auto-making customers. The accommodation allows the supplier to get financing from the customer under the proviso that it won't bolt to a new supplier for awhile, while the customer can feel secure about its supply chain not being broken because it literally gains access to the supplier's plants if things totally go south.
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More often than not, this is a better deal for the automaker than the supplier. Often, the parts maker is under the gun to sell its assets before the re-sourcing period runs out. Witness the bankruptcies of Blackhawk Automotive Plastics Inc., Solar Stamping and Manufacturing LLC and Blue Water Automotive Systems Inc., which filed on Feb. 12 and is the most recent example of access/accommodation deals.
Now automakers are even testier and not even going to these lengths, as specious as they are. Excello Engineered Systems LLC, a small Tier-1 parts maker based in Ohio, was forced into Chapter 11 because a group of customers and lenders essentially pulled the rug out before the company even got to bankruptcy court.
Ford Motor Co., General Motors Corp. and Citizens Bank all either abruptly re-sourced or cut off funding altogether. The quick re-sourcing is highly unusual, since it usually takes a while for a customer to do so. So Excello's fate was pretty much sealed.
It's worth watching whether the Excello situation becomes the norm now in the treacherous auto parts industry. If customers are becoming too fatigued to even try to fund their suppliers, chances of reorganization for auto parts makers may go from what is now a slim hope to none at all. - Ben Fidler
