By Rhoda Miel, Plastics News Staff
Troy, Michigan -- The list of troubled auto suppliers grew a little longer in August as Cadence Innovation llc filed for Chapter 11 protection the US Bankruptcy Court.
Cadence is not likely to be the last.
"We have companies who are just shell shocked," said Kim Korth, president of consulting group IRN Inc. in
While auto industry veterans knew the business was due for a downturn in North American production this year, the combination of slowing sales, higher fuel prices, tighter credit markets and a consumer shift away from trucks and sport utility vehicles has delivered a bigger hit than anyone expected.
"Nobody anticipated the extent of the falloff or the scale of it or the speed of it," she said.
Companies like Troy-based Cadence, which was created out of the remnants of another bankrupt moulder, have been hit hard. Cadence lost 20 percent of its sales volume in June and July - while it also faced rising material costs, the firm noted in court records.
"The cause and effect in this situation is obvious, and the cause is a clear set of external factors," president and chief executive officer Jerry Mosingo said in a news release.
"The reality is that this groundswell of external factors and environmental change exceeds the flexibility of our business model," Monsingo said.
Cadence filed for Chapter 11 protection with the
Cadence's owners, an investment group led by Harbinger Capital Partners, put the company on the block in November, seeking buyers for both its
Attempts to sell its facilities in the
Cadence also sought relief from its principal equity owners, senior lenders and automakers, but without luck.
"Ultimately, these efforts did not produce a viable, non-bankruptcy restructuring option," Cadence said in court filings.
Cadence was created in 2005 when creditors of former Venture Holdings Co. llc took control of that firm's operations. The bankruptcy involves all six
The company lists annual sales of $746 million - about $218 million of that in injection moulded parts, according to Plastics News and industry estimates.
Bankruptcy could offer the firm a chance of restructuring, to meet the demands of an industry built on smaller volume, said Jeff Mengel, a partner in consulting group Plante & Moran pllc.
A new owner could potentially leave behind high-cost rents and high-capacity plants that do not make sense in the current auto industry climate, said Mengel, who is based in P&M's
The Cadence filing is part of a rush of bankruptcies that have hit the automotive plastics supply base this year.
Plastech Engineered Products Inc. of
Progressive Moulded Products Ltd of
It is hard to say who may be in the market for Cadence's plants, Korth noted. There is too much molding capacity in the industry to meet current demands, and some plants will have to close to bring supply and demand back into balance. "There have been a lot of players chasing a significantly smaller pie," she said.
The industry is not doomed, though, she said. At some point the North American car market will hit the bottom of the current cycle and begin to climb back up again - though possibly not at the same record production levels, and with a mix weighted more toward cars and small crossover vehicles.
"It's not as dire in the medium to longer term," Korth said.