DETROIT - Talon Automotive Group Inc., a key supplier to DaimlerChrysler's soon-to-be-launched 2002 Jeep Liberty, is in financial trouble.
The Troy, Mich., supplier failed to make a $5.8 million semiannual interest payment on $120 million in bonds due Nov. 1. That prompted a downgrading of its credit by a credit rating service that questioned Talon's ability to meet future obligations.
Moody's Investors Service's negative rating of the closely held stamping company is in part the result of 'significant uncertainty' about Talon's ability to meet its obligations until the expected April launch of the Jeep Liberty, the corporate rating service stated in a Nov. 7 report.
The company's 30-day grace period ended Friday, Dec. 1. Talon suffers from high debt and continuing financial losses, and is in negotiations with its bankers to avoid default. Company spokesman Kris Pfaehler declined to comment.
Talon ranks No. 129 on the Automotive News list of top 150 suppliers to North America, with North American sales to automakers of $276 million in 1999.
Industry analyst Craig Fitzgerald said Talon's troubles are a bad sign for the parts industry as well as North America's three largest automakers. The automakers are pressuring suppliers for price cuts at a time when parts makers are straining to support new programs that require large amounts of capital, said Fitzgerald, a partner with the consulting firm Plante & Moran LLP of Southfield, Mich.
Vehicle launches are trying times for automotive suppliers. Suppliers don't get a financial return on their typically huge capital costs until production begins.
Talon, a supplier of large stamped steel panels, has invested heavily since 1999 in presses and equipment for the 2001 DaimlerChrysler RS minivan and the 2002 Jeep Liberty, according to its 10-Q annual filing last year to the Securities and Exchange Commission.
For just the Liberty program, Talon has tied up more than $15 million in capital, a significant amount given the company's size, Fitzgerald said.
Such investments can leave parts makers susceptible to small declines in business volume, additional price rollbacks or delayed launches. Problems at DaimlerChrysler could aggravate Talon's problem because the automaker's new-product schedules are uncertain as its new German management team prepares a turnaround plan.
To be sure, Talon is struggling with problems of its own making as well. Production Stamping Inc., a supplier to General Motors that Talon acquired in December 1998, did not meet financial expectations, according to Talon's 1999 10-Q report.
Talon has grown rapidly through three acquisitions since 1996. Sales increased at a compound annual growth rate of 50 percent since 1995 to $291 million last year. But profitability has not kept up. Talon posted a $7 million loss during 1998 and a $9.7 million loss last year.
For the first six months of this year, the company reported a loss of $5 million. It lost $10 million alone during the third quarter of this year, according to its 10-Q report.