North America's largest car hauler, facing a foreclosure deadline by lenders and a possible Teamsters strike, could be forced to shut down within weeks - a development that would cripple the vehicle supply line.
Allied Holdings Inc., pressed by lenders to cut labor costs or face a cutoff of funds and a demand for liquidation, filed an emergency petition in U.S. Bankruptcy Court in Georgia last week. Allied is asking a judge to order a 10 percent wage cut for union workers.
If the judge says yes at an April 26 hearing, the Teamsters say they'll consider a strike.
If the judge says no, creditors could ask the court to liquidate the company pursuant to a loan agreement that expires this week.
Neither Allied nor its lenders are commenting. But there was agreement in the auto industry that an Allied shutdown would be a disaster.
"That could basically cripple the delivery of vehicles across the country," says CSM Worldwide analyst Jim Gillette.
Allied, of Decatur, Ga., has 47 percent of the North American vehicle-hauling market and dwarfs its competitors. According to court papers, the company operated 4,580 trucks in North America as of March 2005. No. 2 PTS Inc., which has 23 percent of the market, is also in Chapter 11 reorganization. The next two largest haulers combined have about 15 percent of the market.
General Motors, Ford Motor Co. and the Chrysler group accounted for almost 75 percent of Allied's business in 2004, according to court documents. Toyota Motor Corp. and Honda Motor Co. combine for about 15 percent.
GM spokesman Tom Wickham says the company is monitoring the situation. Chrysler group spokesman Markus Mainka says the automaker is formulating a backup plan. Ford spokesman Paul Wood would not comment, but one Ford executive said, "This will be a disaster if they stop shipping."
Jayne Mann, general manager of Wortman Motor Co. in Aurora, Neb., relies on Allied to deliver vehicles such as F-150 pickups to her Ford dealership. She says dealers would have to go get vehicles from rail yards in the event of a shutdown.
"There's nothing worse than paying for a vehicle and having it sit in a lot somewhere," she says.
To avert a collapse, Allied is trying to secure an additional $5 million from its lenders to operate in May. A previously negotiated extension expires Tuesday, April 18. In the emergency filing, the creditors said they would consider providing more money only if costs are slashed immediately.
The hauler got $230 million in credit lines from General Electric Capital Corp., Morgan Stanley Senior Funding Inc. and other lenders after filing for Chapter 11 reorganization in Georgia in July 2005. But it missed financial targets in December and January, throwing its financing in doubt.
The hauler is hemorrhaging cash. According to its most recent operating reports, Allied lost $2.8 million in February after losing $5.7 million in January. In December 2005 it lost $26.8 million.
GE Capital spokesman Ned Reynolds declined to comment, and Morgan Stanley officials could not be reached.
Allied CFO Thomas King didn't return four messages left by Automotive News last week. A message left with Allied's law firm, Troutman Sanders LLP in Atlanta, was not returned.
Allied's emergency filing for wage cuts would save the company $2 million a month. But the Teamsters say they'll oppose the motion and will consider a strike if it is granted. The union represents 3,500 Allied workers.
Said Fred Zuckerman, director of the Teamsters Carhaul Division, "We think that they're just playing a game with it."
You may e-mail Greg Migliore at [email protected]