Just four months before the new Jeep Wrangler is supposed to roll off the line at the Chrysler group's radical new supplier-dominated assembly plant in Toledo, Ohio, the paint shop is being held together by a handful of former employees of the company that was supposed to build and operate it for Chrysler.
The paint plant contractor, Haden International Group, has vanished. Meanwhile, 13 plant subcontractors have filed liens against 91 companies, including Chrysler.
Chrysler is scrambling to resolve the liens, stay on schedule and beef up management at the plant.
For Chrysler, the stakes are huge. Haden's pullout is a big setback for CEO Tom LaSorda's bold dream to have suppliers share the planning and cost of an assembly plant. But the implications go well beyond the Jeep plant. In a decade of trying, the industry has yet to prove that the so-called plant of the future has a future.
The trouble in Toledo raises doubts about this tempting way to approach capital projects. On the one hand, it's great when suppliers shoulder much of the costs and responsibility. But if they fail, it's the automaker that's left holding the bag.
LaSorda has been an industry point man for the lean-assembly philosophy that the Toledo plant embodies. His brainchild was to have three suppliers invest $300 million each in the Jeep complex to build and run the paint, body and chassis operations. It was to be the first jointly operated assembly plant in the United States. But it has proved to be every bit the challenge that some observers feared when the plan was announced in August 2004.
Still, Chrysler vows that the new Jeep plant will operate as envisioned, with independent suppliers owning and operating large parts of the factory. Production is scheduled in late July, and the Wrangler is scheduled to arrive in showrooms this fall.
But the company must unravel some unforeseen problems. The redesigned Jeep Wranglers were to be painted by Haden International Group, a Michigan-based supplier of paint systems, waste disposal services and other industrial products, with roots that go back to a British company founded in the early 19th century.
But for all practical purposes, Haden has shut down operations in North America. Former Haden employees in Toledo have formed a new company to continue doing business with Chrysler.
Last week Chrysler dispatched a new manager for the project, Cynthia Sidoti. Meanwhile, for weeks contractors have been filing liens against the paint plant seeking payment of their bills.
In February, Haden halted work around the United States, leaving offices empty, phones unanswered and work unfinished. That left Chrysler, as well as Haden's own vendors and employees, in the lurch.
Technically, Haden owns the nearly completed paint plant on Chrysler's property. But after years of cash-flow problems in both North America and Europe, Haden's management disappeared from the job in February, leaving no one to finish the project. Lawyers for various lienholders say they have been unable to contact Haden officials.
A computer search of U.S. Bankruptcy Court records last week showed no bankruptcy petitions filed under the name Haden International.
New York investment firm Palladium Equity Partners LLC holds a controlling interest in the company. Several messages left on Haden International answering machines were not returned. A Palladium spokesman declined comment.
Where's my check?
Many of Haden's own U.S. suppliers are owed money for their work at Toledo, and Chrysler is negotiating to get them paid and keep the project on schedule.
Last month, a large Detroit-area builder, DeMattia Group Inc., and 12 other plant subcontractors filed mechanical liens in Lucas County, Ohio, for bills totaling nearly $12 million. Other contractors also have filed liens in past weeks.
The complaint names 91 companies as defendants, including Chrysler, Haden, various financial institutions, and a bevy of small contractors who themselves are waiting to be paid off on the project.
One of the defendants, Alec McDougall, president of John W. McDougall Co. in Nashville, was perplexed to learn that his firm is listed as a defendant. McDougall doesn't necessarily owe DeMattia money. In such lien filings, plaintiffs usually list every other relevant subcontractor as a defendant, hoping to elbow out others seeking payments.
McDougall says his 70-year-old family business is owed $250,000 for paint shop sheet metal at Toledo.
"I've got a high-priced lawyer up in Auburn Hills (Mich.) working on it right now," McDougall says. "I've worked with Haden for 20 years. I thought this whole project was risky when I first heard about it."
According to the plan at the Toledo Jeep plant, three suppliers were responsible for constructing critical parts of the plant. In addition to Haden, Korean giant Hyundai Mobis is responsible for producing complete chassis modules on site, and German robotics supplier Kuka Roboter GmbH will own and operate the Wrangler body fabrication plant. Mobis and Kuka are understood to be on schedule with their operations.
Those suppliers are financing their own plants and expect to get back their investments through payment per unit of Wrangler production.
Still a good idea?
The industry has seen other attempts to integrate suppliers into assembly and let them absorb some of the financial risk, notably DaimlerChrysler's Smart plant in Hambach, France. Smart puts suppliers inside the Hambach plant to integrate them into core assembly. Soon after the Smart plant opened in 1998, door module supplier Ymos AG dropped out of the plant.
Smart officials said at the time that some of its supplier partners had underestimated the task of assuming development responsibility through to readiness for mass production. When Chrysler announced the Toledo Jeep plant project, company executives vowed to avoid such mishaps.
"What Chrysler's doing probably seemed like a very good idea five years ago," says Brett Smith, assistant director at the Center for Automotive Research in Ann Arbor, Mich. "But now that one-fourth of the industry's suppliers are at junk-bond status, maybe it's not such a great idea anymore."
Markus Mainka, a spokesman for DaimlerChrysler procurement, says Chrysler will proceed as planned, with a partner owning and operating the Wrangler paint plant.
Suppliers on the site say that in the past month, a group of about 12 Haden workers who suddenly found themselves without an employer created a new company called Encore. Chrysler is paying that entity to get the paint shop ready to go, Mainka confirmed.
Asked who would run the paint shop when it's finished, Mainka said only that a Haden subsidiary remains the contractual operator.
"It's a supplier park project, and our idea is to operate it as we planned," Mainka said.
He declined to say whether Chrysler intends to pay Haden's outstanding bills. "We're working with all affected parties," Mainka said.
The liens are filed against the value of the property being constructed. In this case, that property is an auto paint plant, owned by an apparently nonfunctioning corporation and sitting on property leased from DaimlerChrysler.
To tighten up the project management, last week Chrysler sent Sidoti, the former Dodge Viper plant manager, to Toledo as manager of final assembly for Wrangler production and liaison for Toledo's separate supplier plants.
Plant manager Luis Rivas will retain responsibility for production of the Jeep Liberty and the upcoming Dodge Nitro on a separate line in Toledo.
Sidoti had been working with the Toledo project from Chrysler's advance manufacturing operations in Auburn Hills, Mich.
Three other companies have reported problems this year with Haden. The company ended its relationship with Toyota Motor Manufacturing North America Inc., unexpectedly walking away from a contract to dispose of paint sludge from Toyota's Georgetown, Ky., car plant. Haden also was responsible for a wastewater treatment contract at Georgetown.
Haden also abandoned a paint plant renovation project at New United Motor Manufacturing Inc. in Fremont, Calif.
Haden also was responsible for disposing of paint sludge at a Ford Motor Co. plant in Wayne, Mich. Ford has found a new service provider.
You may e-mail Lindsay Chappell at [email protected]