Meridian drives out of bankruptcy

At 4:05 PM on Friday Dec. 29, 2006, Meridian Automotive Systems Inc. (Allen Park, MI) completed a 20-month journey out of bankruptcy and made good on a promise President and CEO Richard Newsted had offered employees a year prior.

At the holiday party we had in 2005,” Newsted recalls, “I declared that 2006 would be the year of emergence. We were pretty much right on the wire, it being the last workday of the year. I had never been through a Chapter 11 process before, so maybe I was a little bit naïve on what to expect.”

Newsted and Meridian are no longer naïve about the process, or the changed landscape in the U.S. automotive industry, which, according to Automotive News, has seen 28 North American suppliers enter into Chapter 11 since 2001. Meridian had several false starts to the emergence process, scuttling three plans as the automotive sector searched for a new bottom, including in August 2006, when production cuts of 21%, 16%, and 10% for Ford, General Motors, and DaimlerChrysler, respectively, stifled a planned emergence.

In spite of the challenges, Meridian remained committed to its customers, honoring all open contracts, and transitioning those that it couldn’t, including some interior business for GM, to other suppliers.

“Our customers were a very important part of who we were then, and were going to be an equally important part of who we would be when we emerged,” Newsted says. “History books will write themselves a few years from now whether that was the right approach, but we clearly believe it was right to maintain very strong customer relations.”

High note, low point

The roots of the financial issues that eventually felled Meridian can be traced to its formation. In April 1997, Windward Capital Partners acquired steel and thermoplastics fascia manufacturer American Bumper & Mfg. Co. (Ionia, MI), followed by the May 1999 purchase of interiors injection molder Lescoa Inc. (Grand Rapids, MI), which precipitated a name change in late 1999 to Meridian. The May 2000 acquisition of Cambridge Industries (Madison Heights, MI) brought the company to 2001 sales of $977 million, according to automotive consultant Auto Business Ltd. (Stamford, England), but income for that year was only $9.6 million, and Auto Business reports that Meridian had $500 million in debt as of June 30, 2002.

Newsted, who came to Meridian in May 2001 after 25 years in the steel industry, became president in April 2005, the month it filed for Chapter 11 protection, and given a background in finance, sized up the challenges Meridian faced quickly.

“Those acquisitions were essentially 100% debt financed,” Newsted says. “We tried to use the balance sheet to lever up, and that really got us in a situation where our leverage was just too high. With the changing production schedule at the same time when raw materials really started to escalate, it just came to a point where we hit the crescendo. We simply ran out of money.”

A new road

Newsted says the reorganized Meridian brings a different mindset to business, especially at the negotiating table. “I think, probably, we’re more disciplined now on what business to accept, and what’s a competitive return,” Newsted says. “Clearly there was a time when we had taken business at a marginal price, trying to base load whatever manufacturing facility or operation we had.”

The company has restructured, creating two main units—a metals and thermoplastics group and a composites group—from three, and placing one COO over all manufacturing and a CCO over marketing, sales, and engineering.

It hasn’t all been about contraction. The company opening a $40 million fascia operation last February for Ford’s F150 and Expedition, and Lincoln’s Navigator, and plans to ramp up a Jeep Liberty program soon. Meridian expanded into consumer/industrial markets with golf cart parts for Club Car, shower components for Lasko Bathware, and air-conditioning bases for Trane.

“We’ve always been known for our quality, innovation, and technological capabilities,” Newsted says. “Now, we think the OEMs can check the box that we’re a very financially strong supplier.”