The automotive industry has a complex supply chain. General Motors, Toyota and other original equipment manufacturers (OEMs) do not produce the tires, coil springs and hundreds of other components that go into their vehicles. Rather, they contract with suppliers, like Transtar Holding Co. who specialize in the particular processes to manufacturer those products.
So when an automotive industry supplier like Transtar files for bankruptcy, OEMs feel the after effects. They have to find new suppliers who can provide essential components according to the same quality standards at similar, affordable prices.
Transtar files for bankruptcy
The Wall Street Journal noted that Transtar Holding Co., an auto parts manufacturer, filed for bankruptcy on Nov. 19. It has already reached an agreement with its pre-bankruptcy lender to exchange its debt to them for ownership of the company. This is a so-called “pre-packaged” chapter 11 filing.
Silver Point Capital, Transtar’s lender, will eliminate the company’s $425 million debt in exchange for a 100 percent equity stake in the reorganized automotive parts maker. According to MarketWatch, Transtar chief financial officer Joseph Santangelo said the company’s bankruptcy trouble started when it acquired an aftermarket transmission parts producer. Integrating the new company into Transtar’s operations was more difficult than Santangelo and other leaders had anticipated.
Aftermarket News highlighted a statement from Transtar CEO Edward Orzetti, who maintained that the bankruptcy will not impact the company’s operations.
“The actions we are announcing today represent an important and positive step forward in our efforts to strengthen Transtar’s financial position,” said Orzetti. “We will emerge from this restructuring as a stronger company with a more flexible capital structure.”
How bankruptcies impact the automotive industry
While Transtar’s restructuring will enable the company to continue producing parts for its customers, some bankruptcies don’t end so well.
Automotive News acknowledged the impact Clark-Cutler-McDermott’s bankruptcy had on GM. CCM, which filed for bankruptcy protection on July 7, produces wheelhouse liners, floor insulators, dash insulators and fender insulators among other components GM uses in its products. The problem is, GM has no other supplier that provides the components in which CCM specializes.
GM sought to take immediate possession of CCM’s equipment and assets to continue operations. GM’s lawyers stated that if the OEM could not take over CCM’s operations, its production could suffer immensely.
“GM’s damages that would result from such a shutdown would be in the millions of dollars per plant per day,” said GM’s attorneys, as quoted by Automotive News. “Further, GM would suffer loss of customer relations and goodwill as a result of its inability to deliver vehicles and replacement parts as ordered by customers.”
The point is, a bankruptcy doesn’t just affect the company filing for protection, but the economy as a whole.