Unseated. Lear Corp. is the latest in a growing list of automotive suppliers to throw itself on the mercy of the courts. But it could wrap up its Chapter 11 process within 60 days.
Once one of the highest-flying of automotive suppliers, Lear Corp. has filed for Chapter 11 bankruptcy protection, but after receiving support from lenders, bondholders and customers, it is expected to make a relatively quick passage through the courts.
Best known for its seating systems, Lear is the latest domino to fall among automotive suppliers, many of them among the world’s largest. In May, Ford Motor Co.’s one-time in-house parts supplier, Visteon, filed for Chapter 11, and industry analysts expect still more parts manufacturer to file as they try to dig out from the burden of years of mounting debt at a time when the U.S. auto market has plunged to its lowest level in decades.
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Lear’s bankruptcy was anything but a surprise, as TheDetroitBureau.com recently reported. But it still shakes a creaky system that some observers fear could collapse at any time.
On the positive side, Chrysler has re-emerged as a new entity after its trip through federal bankruptcy court, and General Motors is expected to wrap up its so-called 363 Sale, and complete its own restructuring, as early as July 10th. There had been concerns that if either maker’s reorganization was delayed – especially if that resulted in a long-term shutdown in assembly operations – it could trigger a more widespread series of failures by suppliers. In turn, that could have brought virtually the entire U.S. auto industry to a grinding halt – even makers like Toyota, Honda and Ford.
Nonetheless, the plunge in the U.S. market, from more than 17 million units a year, early in the decade, to the current run rate of less than 10 million, is playing havoc with partsmakers like Lear – especially those dependent on a limited set of customers. Though the Southfield, Michigan-based company generated revenues of $13.6 billion, last year, 40% of that came from just General Motors and Ford.
In the 1980s and ’90s, the supplier initiated an aggressive growth strategy, expanding from its seating base into a variety of other promising lines of business, including electronic components. But various acquisitions added to its mounting debt. And the situation only worsened when Lear’s two key markets, North America and Europe, both went into recession. In decades past, this geographic diversity typically would have helped offset problems in one market or the other.
Though it missed a critical interest payment, due on June 1st, Lear delayed filing for Chapter 11 while it continued negotiating with its various lenders and bondholders. It has received a commitment for a $500 million loan package from a consortium including Citigroup and J.P. Morgan that should see it through the bankruptcy process.
Traditionally, it can take a year or more to restructure under court supervision – rival supplier Delphi Corp., spun off by GM in 1999, has spent the last several years struggling to come up with a plan to get itself out of bankruptcy – but the unexpectedly quick court proceedings for Chrysler and GM have buoyed hopes that federal judges will move fast, if offered a good reorganization plan.
“We are conducting business as usual,” noted Bob Rossiter, Lear Chairman and CEO, adding his hopes to complete the bankruptcy proceedings within 60 days. In the meantime, the supplier expects to keep its plants open and, with court approval, will continue paying its current workforce and providing pension payments to its retirees.