Dana Plunges Into Bankruptcy

March 6, 2006

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Following a path worn by big suppliers such as Delphi, Tower,Meridian, Federal-Mogul, and Collins & Aikman, Dana Corp. has filed for protection under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York.

Dana, which had total sales of $9 billion in 2004, cited a combination of factors from production cuts by General Motors Corp., Ford Motor Co., and the Chrysler Group to the rise in commodity and energy prices, which have outpaced cost savings efforts, the company said. 

The general financial condition of the industry, together with an inability to renew or expand its credit facilities, also has undercut the company’s liquidity, Dana said in a statement.

John Murphy, an analyst with Merrill Lynch, said in research note earlier this week Dana’s troubles in its heavy truck business have exacerbated the pressure it is already feeling in its light-vehicle segment.

Dana executives had openly spurned an offer for a merger from ArvinMeritor of Troy, Mich. Dana had more than enough resources to make it on its own, the company’s executives said. The ArvinMeritor merger plan had included a comprehensive plan for restructuring both companies, one analyst noted.

Surprise filing

 

Nevertheless, the failure of Dana Corp., which is more than a century old, caught many observers by surprise because the company was always considered one of the better-managed companies in the auto industry with a diversified portfolio of products for both light- and heavy-duty vehicles.

Up until last fall when the company disclosed it may have overstated its earnings in recent years, there had never been any hint of financial trouble. However, the company posted a $1.3-billion loss for the third quarter and has delayed releasing complete financial results for the fourth quarter.

However, Michael J. Burns, Dana chairman and chief executive officer, said Chapter 11 will “provide the company a chance to fix our business comprehensively — financially and operationally.” Dana reported total assets of approximately $7.9 billion and total liabilities of approximately $4.7 billion, on a consolidated basis, as of September 30, 2005.

“This will be fundamental change, not just incremental improvement.  The Chapter 11 process allows us to continue normal business operations, while we restructure our debt and other obligations and enhance performance,” added Burns, who said the bankruptcy filing should have no impact on Dana’s customers.

 

Dana has about 46,000 employees worldwide, about 35 percent fewer than it employed in 2001. In the United States, the company employs 19,000 workers at 50 facilities and the North American vehicle-production region accounts for about two-thirds of Dana’s revenue.

Only about 7200 of Dana’s U.S. employees are represented by unions, including the United Auto Workers and the United Steelworkers. Both unions have been asked for concessions as the company shifted more work to locations outside the U.S. during the 1980s and 1990s. Consequently, while the company does carry some legacy costs on its books they are now relatively modest when compared to those of Delphi Corp.

Dana's factories, however, makes a variety of auto parts such as axles and vehicle frames that are expensive to ship from outside the U.S., so the union could face some labor unrest. 

Burns called the decision to file for bankruptcy protection “extremely difficult but necessary and responsible,” and said the move would give Dana time and opportunity to fix its operations.

“We want to assure everyone — our customers, suppliers, our people, and our communities — that Dana is open for business as usual,” he added. “And, to this end, our customers can continue to rely on Dana for quality products — delivered on time and to best-in-class specification.”

Dana filed for bankruptcy only after consulting with advisors and concluding that the interests of its creditors, employees, customers, and suppliers would be best served by reorganizing under Chapter 11 of the U.S. Bankruptcy Code, Burns said.

Burns said Dana also intends to move ahead with restructuring plans announced last autumn, which include the sale of non-core businesses, the closure of several, and shifts of production to lower-cost plants outside the U.S.

Dana is only the latest in a growing string of automotive suppliers that have gone bankrupt. Delphi Corp. of Troy, Mich., one of the world’s largest automotive suppliers, filed for bankruptcy in October. Before that, Collins & Aikman and Tower Automotive also sought court protection during 2005.

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