DETROIT -- In a high-stakes gamble, North America's largest automotive casting company wants to scrap what it says are unprofitable contracts with the Big 3, Honda and several giant Tier 1 suppliers. Intermet Corp. of Troy, Mich., has given 11 of its biggest customers an ultimatum: Pay higher prices and steel surcharges by mid-February or find a different casting supplier for crucial chassis and brake parts.
Intermet, which filed for Chapter 11 bankruptcy protection in Detroit on Sept. 29, says it can't keep selling parts below cost. The company stated its position on so-called "burdensome" customers in a Nov. 17 motion before the U.S. Bankruptcy Court for the Eastern District of Michigan in Detroit.
If it gets court approval to reject contracts that it no longer wants, Intermet could shed up to 78 percent of its North American business. And it's unlikely that the rest of the casting industry could pick up the slack.
The court is scheduled to hear Intermet's motion on Dec. 15.
The challenge for Intermet's customers is to shift their business to other suppliers without paying big price increases. Two Intermet competitors, Citation Corp. of Birmingham, Ala., and Grede Foundries Inc. of Milwaukee have raised prices, industry sources say. Citation sought Chapter 11 protection on Sept. 18.
Chapter 11 rules allow companies to shed unprofitable contracts. Bankruptcy experts say it is doubtful that a judge would reject a motion that allows a company in Chapter 11 reorganization to regain profitability.
Intermet spokesman Mike Kelly declined to discuss details. "The company is in constructive discussions with our key customers," he said.
Intermet said in its Nov. 17 motion on the contracts that it is warning customers so they can use the traditional December shutdown period "to re-source their production, should they choose to do so."