Car-parts supplier Dana Corp. files for bankruptcy protection
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Associated Press - Published: March 4, 2006
TOLEDO, Ohio — Auto parts maker Dana Corp. filed for bankruptcy protection for its U.S. operations on Friday, joining a growing list of suppliers forced to make major restructuring moves because of the slumping U.S. auto industry.
Dana, which sells brakes, axles and other parts to most major automakers, has been facing increasing pressure from big car makers to sell them parts at lower prices.
That coupled with rising energy costs that are driving up the costs of raw materials and driving down demand for gas guzzling sport utility vehicles and pickup trucks have put auto parts suppliers in a financial bind.
Auto analysts said Dana's bankruptcy filing will increase the uncertainty engulfing the industry.
"Dana's not the first and it won't be the last," said Sean Egan, managing director of Egan-Jones Ratings Co.
Dana, with 46,000 workers worldwide said in January that it lost nearly $1.3 billion in the third quarter last year while realigning its business.
It has been in a downward spiral since the company announced last fall that it was restating earnings and lowering its profit forecast for 2005 because of accounting errors.
The Toledo-based company said it filed for Chapter 11 protection so it could fix financial and operational problems. The filing was entered in the U.S. Bankruptcy Court for the Southern District of New York.
"The general financial condition of the industry, together with Dana's inability to renew or expand its credit facilities in a timely manner, has significantly constrained Dana's liquidity," the company said in a statement.
Dana supplies parts to General Motors Corp., Ford Motor Co. and other automakers. The filing does not affect the company's businesses in Europe, South America, Asia, Mexico or Canada, the company said.
"They're making money overseas," said Marc Santucci, a supplier analyst for ELM International Inc. "The filing shows that anyone who's a major suppler to the Big 3 is in trouble."
Delphi Corp., the nation's leading parts supplier, filed for Chapter 11 bankruptcy protection in October. Visteon Corp., the nation's second biggest auto parts supplier, is closing three plants and putting another six up for sale under its restructuring plan.
Tower Automotive Inc. filed for bankruptcy protection a year ago.
Trading of Dana's stock was halted on the New York Stock Exchange just before the announcement. Shares fell 37 cents to 67 cents Friday before trading stopped. The stock had been as high as $17.03 in the past year.
Before the filing, Dana announced plans last year to cut its salaried work force by 5 percent, close three plants in North America and Australia and sell parts of its business to sharply reduce costs.
Dana Chairman and Chief Executive Officer Michael Burns said Friday that the company will move forward with its restructuring plans. The company has secured $1.45 billion from its lenders to continue operations in what's known as debtor-in-possession financing.
"We want to assure everyone — our customers, suppliers, our people and our communities — that Dana is open for business as usual," Burns said.
At a late-day hearing in U.S. Bankruptcy Court in New York, Judge Burton Lifland allowed the company access up to $800 million to pay its day-to-day expenses, pending final court approval of the full $1.45 billion credit line. Lifland also granted motions allowing the company to spend about $174 for expenses the company said it needed to keep paying wages and benefits and avoid costly shutdowns, such as paying warehouses and foreign suppliers.
The company has about 50 major facilities in the U.S. with most centered in Ohio, Michigan, Indiana and Kentucky.
Dana in December lowered profits by $44 million for a period starting in 2000 and ending in June. The changes were caused by improper accounting for customer pricing increases and supplier reimbursement costs in the company's commercial vehicle unit, Dana said.
The U.S. Securities and Exchange Commission earlier this month said it was opening an investigation into Dana's financial practices and whether the company violated federal securities laws.
The company that began as Spicer Manufacturing Co. took on its current name in 1946. Clarence Spicer in 1904 began making universal joints for autos at in Plainfield, N.J., and in 1928 the company headquarters moved to Toledo.
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On the Net:
Dana Corp.: http://www.dana.com
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