Facing a cash crunch in December 2008, Key Plastics followed scores of other auto parts suppliers into bankruptcy.
Unlike many, Key Plastics faced no imminent threat of liquidation.
"Was there an immediate need for the restructuring to happen right then? No," says Terrence Gohl, CEO of the suburban Detroit supplier. "But there was a weight to the company that would not be sustainable over the long run."
By taking Key Plastics into bankruptcy -- despite the risk of losing control -- the company's owners gambled that they could get a quick rinse of their debt from their balance sheet. That would give them a leg up on rivals that coped without court protection from creditors.
Key Plastics' December 2008 bankruptcy filing -- eight years after the company's first bankruptcy -- has helped Gohl, 48, build the manufacturer of engineered plastic parts into a lean, aggressive global company. Gohl says Key Plastics is closing in on profitability.
Automakers are impressed by Key Plastics' lower debt and cost structure. Since the company emerged from Chapter 11 in February 2009, Gohl's customers have shifted him $100 million in business. The losers? Distressed suppliers in North America and Europe.
Key's use of tactical bankruptcy -- and the supplier's subsequent new business -- show a new reality. Thanks to the bankruptcies of companies such as Chrysler and General Motors, the business world sees bankruptcy as a useful business practice, not a stigmatizing state of failure.
"Chrysler knows firsthand," says the automaker's purchasing spokeswoman, Katie Hepler, "that sometimes a bankruptcy, though difficult, is necessary to form a viable, healthy company."
Several large Chrysler suppliers have restructured through Chapter 11 and have remained valuable partners, Hepler says.
"We do not stigmatize suppliers that do so responsibly, minimizing the impact to our production and pricing, as long as those suppliers' financial condition is stable going forward," she says.
Lenders are also taking a more tolerant view of bankruptcy. Bank of America Senior Vice President Dan Terpsma says Chapter 11 can be "greatly discounted" if the post-bankruptcy company has a different owner, different capitalization level and different costs.
There's a cautionary tale in the recent past, though. Cadence Innovations, a suburban Detroit supplier of molded plastic components for instrument panels and cockpits, came out of bankruptcy like gangbusters three years ago. But it liquidated after two years when it couldn't get the prices it needed to survive.
And John Groustra, a partner at turnaround consulting firm Conway MacKenzie Inc. in suburban Detroit, says a company may not regain its past stature after reorganization. Says Groustra: "There have been no sector-leading companies such as Lear Corp., Federal-Mogul Corp., Dana Holdings Corp. or others who have emerged from bankruptcy to again be market leaders."