Globe & Mail Story
Budd Canada's future uncertain
Auto parts maker cites three years of losses, bad luck
By GREG KEENAN
AUTO INDUSTRY REPORTER
Friday, February 6, 2004 - Page B3
Auto parts maker ThyssenKrupp Budd Canada Inc. has warned that its future is uncertain after three years of losses caused by problems in gearing up a leading-edge technology and by plain bad luck.
The company, which employs more than 1,800 people in Kitchener, Ont., has lost $179.6-million in the past three fiscal years and noted in its annual report that financial obligations total $63.6-million in the current fiscal year and $84.2-million in 2005.
"The corporation's ability to continue as a going concern is uncertain and will be dependent on management's ability to realize improved cash flow from operations" and operate within a line of credit provided by an affiliated company, Budd Canada said in its annual report, the second year in a row that the report has carried such a warning.
The line of credit from ThyssenKrupp Finance Canada Inc. has a limit of $250-million until Dec. 31, but includes existing borrowings of $131-million.
If a debt repayment of $40-million and a required contribution to an employee pension plan of $23.6-million are paid through the line of credit, that will leave just $55-million.
That's plenty, Budd Canada secretary and treasurer Winston Wong said, with the expectation that the company will return to profitability during the current fiscal year. The loan is not callable until Dec. 31.
"Management figures that the $250-million will be more than adequate to satisfy our needs," Mr. Wong said in an interview yesterday.
Efforts to bring down costs should reverse the losses, the annual report said, although it noted that cost-cutting goals set forth in a restructuring plan put in place in September, 2002, were not met last year.
That's where the bad luck came in.
First, a tornado smacked a General Motors Corp. plant in Oklahoma and caused it to shut down for two months.
That plant is one of two that represent the destination for more than 80 per cent of Budd Canada's output -- frames for GM's mid-sized sport utility vehicles.
"Out of the whole big area, it hit General Motors, right there in the paint shop," Mr. Wong said. "It's incredible."
Then Budd Canada was hit by the power blackout in Ontario that forced it to restrict operations, move shifts of workers around and draw down inventory.
Those two events contributed $6-million toward the loss of $19.7-million incurred during fiscal 2003, the annual report said.
"We don't see these kind of extraneous events -- uncontrollable to anyone -- happening in 2004," Mr. Wong said.
The Canadian Auto Workers union, which represents the hourly employees at the company's only plant, is worried about the future of the operation, said Hemi Mitic, an assistant to CAW president Buzz Hargrove. But he noted that productivity has improved and problem areas have been identified.
The key struggle for Budd Canada has been switching from the traditional stamping and welding together of metal parts to leading-edge hydroforming technology, where water pressure is used to bend and shape the components, reducing weight and making the frames more exact.
One of the key problems in the first year of the GM contract, 2001, was that production volumes for the auto maker's new SUVs did not meet original predictions, Mr. Wong said.
The expensive tooling was in place and the money had been spent, but the low volumes meant Budd Canada's financial expectations were not met.
It also took a long time to train Budd Canada's workers in the new processes.
"It's the most complicated product that we have ever encountered," Mr. Wong said.