Federal-Mogul's rivals await opportunities

DETROIT - Federal-Mogul Corp.'s move to shed its asbestos liabilities has competitors watching for any hint of change in the new competitive landscape.

Executives at several competitors held meetings in the wake of Federal-Mogul's Chapter 11 bankruptcy filing on Oct. 1.

The subject: how to compete with an industry giant that soon may be freed of liabilities that have hobbled it for months.

Competitors, including Chicago Rawhide in Elgin, Ill., are banking on new market opportunities from Federal-Mogul's troubles, said David Monaco, vice president of the original-equipment unit of the supplier of engine, transmission and other seals. "We've been following them every day for the past six months.

"Short term, nothing changes," Monaco said. "Midterm, the (court filing) may impact some sourcing decisions on future business, and recent events might affect those decisions."

Uphill battle

Federal-Mogul could face an uphill battle, said Scott Upham, president of Providata Automotive in Ann Arbor, Mich., a consulting firm. Its internal problems include "bad quality, mid-level entrenched poor management and shaky automaker relationships," which could hinder a comeback, he said.

The company's strong senior management team is a plus, even though it has never handled a corporate turnaround, Upham said.

Federal-Mogul's automotive lighting group is a strong competitor and has substantial DaimlerChrysler business, said a senior executive at a competing company. But a test of its strength to go after new business could come next year when Ford Motor Co. seeks lighting suppliers for a new platform, said the executive, who asked not to be identified.

Cash windfall

Bankruptcy lawyer Barbara Rom said a Chapter 11 reorganization filing will give Federal-Mogul the advantage of keeping creditors at bay until it can develop a plan to put its finances in order. If approved by the court, the company can insulate future operations against past claims.

The effect would be a sudden cash windfall that can be used to invest in new or existing markets, said turnaround consultant Tim Weed, a partner with the firm Plante & Moran LLC of Southfield, Mich.

But any company in Chapter 11, said Rom, a partner at Pepper Hamilton LLP in Detroit, runs the risk that customer confidence will erode from a perception that it cannot meet obligations and contractual commitments.

Hoping to dispel such concerns, Federal-Mogul CEO Frank Macher said, "We're going to be profitable right away ... from a (cash flow) standpoint, we're going to be very strong.''

The company's banks are prepared to infuse as much as $675 million in debtor-in-possession financing.

Staff Reporter Gail Kachadourian contributed to this report

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