The Big Die-Off: Automotive Suppliers Struggle to Survive

• Print
• E-Mail
• Feedback

Since 2006, Frye and his colleagues have called for similar measures, particularly additional investments. But the Americans were more interested in collecting a hefty management fee than investing in the company. And when Platinum did become directly involved in the business, it was a miserable failure. Daimler wanted a letter of intent from the main partner for the German plants, while the people at Platinum demanded a sales guarantee in return. The conflict escalated, and in the end Daimler cancelled all new orders.

The major automakers and Acument's large suppliers now have seats on the board of creditors. They have guaranteed their orders until mid-2010 and want to preserve the relatively low-cost supplier. Gores is expected to inject fresh capital. Most of all, however, the automakers want Platinum's European subsidiary to pay off €17 million in debt Acument incurred shortly before declared bankruptcy.

Credit Crunch

But Acument doesn't just face problems with the investment companies. Many at the company are complaining about the relatively uncooperative behavior of lenders. Germany's state-owned banks and IKB, a bank that specializes in lending to small and medium-sized businesses, are either unwilling or unable to issue any new loans. Even sound small and medium-sized companies from Germany's southwestern Swabia region are being charged up to 16 percent interest.

Klaus Dieter Frers, the chairman and currently still the majority shareholder of Paragon AG, blames the "inexplicable" and "unreasonable" behavior of the banks for his company's bankruptcy, and he is particularly critical of IKB. It has "not lived up to its responsibility to small and medium-sized businesses," says Frers, whose company controls 85 percent of the world market for air quality sensors used in the cockpits of cars.

Frank Kebekus, Paragon's insolvency administrator since October, has a much more qualified view of the situation. When sales declined sharply and Frers could no longer pay the interest, the amateur racecar driver with a weakness for classic cars demanded a debt waiver of up to 70 percent from the banks. "The banks didn't find that particularly sexy," says Kebekus.

In addition to the dramatic drop in sales, a bizarre financing structure drove Paragon into insolvency. Frers had obtained some of his long-term financing with participation certificates, which had to be serviced at a 16-percent interest rate.

When the Düsseldorf insolvency specialist Kebekus acquired Paragon in early October, he spoke for the first time by phone with the restructuring specialist at VW, who is constantly keeping tabs on dozens of bankruptcy candidates in the supplier industry. The company, based in the central German city of Wolfsburg, buys more than half of Paragon's products.

There's good news for the 490 employees still at Paragon today, too: VW didn't cancel any orders and is interested in Paragon's survival. Frers' plans to submit an insolvency plan to the board of creditors and to manage the restructuring himself, even though he will lose much of his fortune.

A critical issue is the Artega GT, which amateur race-car driver Frers developed to compete with the Porsche Cayman. The sleek sports car is produced by a company that is still solvent and is owned by Frers and a Mexican-owned US holding company. But that company owes money to Paragon, which the insolvency administrator will now claim.

"I'm shaking like a jackhammer and my tongue is stuck to my gums like a stamp," a reporter with the Auto-Bild sports car magazine wrote enthusiastically after taking the Artega for a test drive. But at a price of €79,950, customers apparently prefer to buy a real Porsche. So far only a few Artegas have found their way into the hands of wealthy aficionados.

• Back
• 1
• | 2

• Part 1: Automotive Suppliers Struggle to Survive
• Part 2: 'Unreasonable' Bank Behavior