Exit plan unlikely by stated deadline

10/3/2006

Three months from today, Toledo's Dana Corp. is scheduled to file its plan to emerge from bankruptcy protection.

But with so much uncertainty in the U.S. auto industry, including cost-cutting pressures from the Big Three as their market share declines and production is scaled back, three months likely won't be enough to finish formulating a plan, the company and experts agree.

A Dana spokesman conceded yesterday that the company is likely to ask for additional time to file its reorganization plan despite having made steady progress during the bankruptcy's initial stage.

Restructuring every facet of Dana's North American operations has taken on increased urgency with the Big Three's ongoing financial woes, said spokesman Chuck Hartlage.

Even if an extension is granted, though, Dana's creditors will want at least a preliminary proposal quickly, said attorney Shawn Riley of McDonald Hopkins Co. in Detroit.

"There's going to be a great deal of pressure on them," he said.

Dana is more than a third of the way through the 18 months that Chairman and Chief Executive Mike Burns initially told creditors and others he hoped it would take the company to emerge from bankruptcy. Dana filed its Chapter 11 case on March 3 in U.S. Bankruptcy Court in Manhattan, listing assets of $7.9 billion and debts of $6.8 billion.

In the first six months of its bankruptcy, Dana has racked up $4.4 billion in sales and $149 million in net losses, according to the latest filings from the company.

Losses narrowed in August, but the continuing flow of red ink underscores the need for Dana to overhaul its business, Dana's Mr. Hartlage said.

The Dorr Street firm received one six-month extension until Jan. 3 to file its restructuring plan, saying it needed to complete such tasks as selling three busi-ness units that include factories in Upper Sandusky, Wharton, and Archbold.

Those factories have 500 employees, nearly a quarter of Dana's 2,080-person workforce in northwest Ohio and southeast Michigan.

According to bankruptcy law, Dana can continue asking for extensions until September, 2007, Mr. Riley said. That is roughly when Mr. Burns estimated his company would emerge from bankruptcy, but Mr. Riley and other experts said that is too optimistic.

"I can't say that 18 months is not possible, but it is an aggressive time frame," said attorney Reggie Jackson, president elect of the American Bankruptcy Institute. He is with Vorys, Sater, Seymour and Pease LLC in Columbus.

Said attorney Jean Robertson of McDonald Hopkins in Cleveland: "There's a lot going on, and there's a lot yet that has to be finished."

Among factors that remain up in the air are whether Dana will ask for pay and benefit cuts from workers, get retirees to pare down their health-care benefits, and seek to trim costs by moving more work overseas.

Dana, meanwhile, still is trying to work out an executive compensation plan for Mr. Burns and five other top executives. The latest version would have given him a bonus of at least $4 million if the company emerges from bankruptcy or is sold, but it was rejected by Judge Burton Lifland.

Though Dana has yet to seek wage concessions from employees, the company likely is watching fellow bankrupt auto supplier Delphi Corp. to see whether the firm obtains cuts from hourly union workers, Mr. Riley said.

Unless such concessions are unique to Delphi because of its connection to former parent General Motors Corp., other bankrupt parts makers likely will seek them, he said.

As far as the three businesses Dana announced nearly a year ago it wanted to divest, multiple potential buyers have expressed interest in each, said Mr. Hartlage, who declined to comment further.

Investors with billions of dollars in private equity money are considering opportunities in the auto industry, which they think is undervalued, said Neil De Koker, president of the Original Equipment Suppliers Association.

Such investorsare looking for bargains, and Dana may not believe that proceeds from the sale of those three businesses would be adequate, Mr. De Koker said.

Dana could carry the businesses for 6 to 12 months longer to see if the market improves, but that may not pay off either, said Mr. Riley, the Detroit attorney.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.