price increases

Auto suppliers turn to bankruptcy to renegotiate contracts

Suppliers have so far been largely successful in obtaining pricing relief from automakers, according to attorneys and consultants involved in the discussions. But as suppliers intensify their efforts for price increases, and OEMs face a bleaker economic outlook and major supplier-related financial losses, it’s less of a guarantee who blinks first at the negotiation table.

The situation is not nearly as dire as the Great Recession of 2007-09, but suppliers across the tiers continue bearing the brunt of supply chain pain, and they are not afraid of pulling the bankruptcy card, according to Max Newman, attorney at Detroit-based Butzel Long who specializes in Chapter 11 proceedings.

“There have been threats of bankruptcy in connection with price increases, and there’s sort of an implicit threat of bankruptcy whenever a supplier is seeking a price increase because an OEM doesn’t just hand them out to anybody,” Newman said.

In the past few months, at least five automotive suppliers have filed for bankruptcy while others have moved to close plants in Michigan as supply chain volatility and inflation bloat the cost of doing business.

In many instances, suppliers are locked into contracts entered before the COVID-19 pandemic and supply crisis flipped the

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Corvette parts supplier Erin Industries files for bankruptcy

Founded in 1975, the company “had a long history of profitability” that reversed as the result of a “disaster” deal with Nova Steel USA Inc., Steven Atwell, owner and president of Erin Industries, told Crain’s.

Now the company is hoping for debt relief and leverage to restructure unfavorable contracts by filing for Subchapter V of Chapter 11 bankruptcy protection — an option designed for smaller businesses that became available in 2020.

“We’re going to be able to work through this, and I think we’re going to survive. … I know we’re going to survive,” Atwell said. “Chapter 11 gives us some leverage to renew our contracts and try to get some of these (price) increases through.”

Erin Industries is the latest in a string of recent bankruptcies in Michigan, where financial woes are piling up on manufacturers and the weight of the pressure is falling on smaller companies. Machine shops and lower tier suppliers are increasingly turning to Subchapter V — a cheaper way to go bankrupt, as it were — to keep the lights on.

Atwell said most of his customers, which include major automakers and suppliers, offered price increases on steel, but not on other inputs, such as

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