DETROIT - General Motors and Ford Motor Co. have come to the aid of an ailing automotive supplier that is central to their need for large plastic body components.
Cambridge Industries Inc. is short on cash as it prepares to supply GM with the world's first pickup cargo bed and tailgate made entirely of plastic. The feature will be an option this year for Chevrolet's extended-cab Silverado. Cambridge has begun talks with prospective buyers over the sale of the company.
At least one of the automakers is 'supplying Cambridge limited financial and management assistance,' said a source familiar with the arrangement.
Cambridge's financial troubles stem from an ambitious acquisition strategy, excessive debt and an earnings shortfall last year. But Richard Crawford, chairman and second largest shareholder, and Boston leveraged buyout firm Bain Capital Inc. triggered the planned sale. They refused to provide the additional investment required for the big Ford and GM programs the company had won, according to interviews with company executives.
The decision not to reinvest came as a surprise because the GM and Ford programs are expected to add substantially to company earnings during 2001 and beyond.
Cambridge of Madison Heights, Mich., is not alone in its difficulties. Key Plastics LLC of Novi, Mich., has a heavily leveraged balance sheet and a recently downgraded credit rating. It also faces pressure from bankers. Unless Key can ease liquidity pressures, Standard & Poor's said, 'there is an identifiable risk of default over the near term.'
Troubled suppliers continue to haunt the industry. In an age of just-in-time parts supply, automakers cannot afford difficulties that may interrupt delivery and disrupt production.
Ford spokesman Frank Zapota said the automaker is 'working with' Cambridge but did not provide details. 'We don't expect to lose any production,' he said.
Cambridge is scheduled to produce the fenders for Ford's new SuperDuty Crew Cab and Lincoln's Blackwood. Both are four-door pickups.
GM spokesman Dan Jankowski said that should Cambridge be sold, GM will work with new management to continue production.
Seeking bridge money
The sheer quantity of new GM and Ford business has strained Cambridge's financial position because it must invest heavily to prepare for production, then wait for revenue to begin flowing, said John Sieg, director of marketing. He said the company is meeting all production schedules.
Donald Campion Cambridge's CFO, said he is seeking bridge loans to cover operating costs until a buyer can refinance the company. He and investment bankers Morgan Stanley Dean Witter & Co. last week began interviewing prospective buyers earlier this month.
Privately held Cambridge typifies the automotive supplier that has grown rapidly through acquisition to survive in a world of larger competitors. Cambridge has made 11 acquisitions in the past decade. The deals boosted the company into a key supplier of trunk lids, body panels, grilles and exterior trim, with estimated sales last year of $530 million. Its 1998 sales placed it 74th on the Automotive News list of largest suppliers of original equipment parts to North America.
Campion said the company has 'a great portfolio of programs for the future' and predicts earnings will substantially improve next year.
But Standard & Poor's did not wait. The New York firm lowered its credit rating on the company May 21 because of concern over its weaker than expected operating performance and its debt and capital-spending requirements.
Standard & Poor's said the new capital was required to handle the automaker programs the company had won. One of Cambridge's top programs is the GM plastic truck box that launches later this year. The automaker plans to offer the 6.5-foot plastic box as an option in the 2001 model year.
To handle that program alone, Cambridge spent nearly $6 million on pre-launch preparations at its Huntington, Ind., plant. Several million dollars more are required this year, Campion said.
That spending came on top of a decade of debt-financed acquisitions. In 1997 alone, the company spent $77.9 million on four acquisitions.
Its debt-to-cash ratio had been about 5-to-1, indicating a heavily leveraged company. At that level, it would take the company five years to pay down its debt if it threw all of its cash at the problem each year, an unlikely situation.
Cambridge's debt ratio is now 6.3-to-1, an uncomfortable level, Campion acknowledged. For the third quarter ended Sept. 30, 1999, total debt was $335 million.
That debt and disappointing third-quarter 1999 earnings violated Cambridge's lending agreement with its banks. In 1997, the net loss was $10.2 million; a year later it climbed to $18.3 million. For the first three-quarters of this year the deficit was $16 million, according to company reports.
Campion eliminated the short-term financial problem by recently negotiating a waiver with banks for increased funds. But he said he had understood since joining the company in May 1999 that Cambridge would require additional investment by year's end.
Cambridge turned to its two large shareholders. Crawford owns 42 percent, and Bain Capital owns 55 percent.
Bain is the Boston leveraged-buyout firm founded in 1984 by W. Mitt Romney, son of the late George Romney, who was the former chairman of American Motors and a Michigan three-term governor.
But by November 1999, Campion said Cambridge's owners declined to reinvest. Senior management concluded that a sale was inevitable.
Campion said it was not clear why Crawford and Bain decided to 'take a pass' on reinvestment. 'Our returns are good, but they may feel that they can get higher returns elsewhere,' he said.