Auto supplier Dana Corp. files for bankruptcy protection

TOLEDO, Ohio -- Dana Corp., hurt by a slump in output at Detroit automakers and falling sales and prices, filed for bankruptcy protection today, joining a growing list of troubled U.S. automotive parts companies seeking to reorganize under court supervision.

The company supplies axles, driveshafts, chassis and steering components, brakes and other parts for General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Toyota Motor Corp., BMW AG and other companies.

Many of the parts it supplies are used on light trucks and SUVS, a segment of the U.S. market that has weakened because of rising gasoline prices and a shift in consumer buying habits. Rising material prices and energy costs have also undermined the company, as well as other suppliers.

While the Toledo-based company has secured $1.45 billion in financing to keep operations running, the bankruptcy filing is the latest jolt to the battered U.S. auto industry and upper Midwest economy.

Automotive suppliers Delphi Corp., Collins & Aikman Corp., Tower Automotive Inc. and Meridian Automotive Systems are also restructuring under bankruptcy protection.

GM and Ford are posting large automotive losses and have cast another cloud over the industry with plans to close plants and cut thousands of factory jobs to reflect lower sales and U.S. market share.

"Although such a move has been rumored for some time, the speed of Dana’s demise will further dampen sentiment toward the auto industry," JP Morgan auto analyst Himanshu Patel said in a research note today.

Dana has 44,000 employees, including 19,000 in the United States. About 7,200 of the U.S. workers are unionized.

The company’s financial outlook has deteriorated in recent months. It lost almost $1.3 billion in the third quarter of 2005 and is also under investigation by the

Securities and Exchange Commission for improper accounting practices.

The bankruptcy petition covers Dana’s 40 U.S. subsidiaries and excludes its European, South American, Asia- Pacific, Canadian and Mexican subsidiaries. The company listed $7.9 billion in assets and $6.8 billion in debts in the filing made in the U.S. Bankruptcy Court for the Southern District of New York.

Dana has faced a steady decline in revenues resulting from decreasing market share and production levels of its largest domestic customers, notably Ford and GM, along with sharp increases in commodity and energy prices that have outpaced any cost savings the company has been able to achieve.

Ford accounts for 25 percent of Dana’s sales mix, with the automaker’s full-size F-series pickup line accounting for the bulk of the business. Sales of the F-Series dropped 4 percent last year.

Dana Chairman and Chief Executive Officer Michael J. Burns said the company will use bankruptcy to “comprehensively” fix the company.

"This will be fundamental change, not just incremental improvement," Burns said in a statement. "This is an extremely difficult, but necessary and responsible decision that will provide us with the time and opportunity to strengthen our performance and achieve a sustained turnaround at Dana."

Analysts expect Dana to renegotiate or exit certain parts contracts, restructure $2.4 billion debt and reduce long-term retiree obligations that total $1.7 billion.

"Relative to other parts makers, like Delphi, Dana does not have a large unionized workforce, nor does it pay wages out of line with the industry," UBS Investment auto analyst Rob Hinchliffe analyst said in a report this week before the bankruptcy filing.

Hinchliffe said Dana will also be faced with a downturn in the commercial truck business in 2007.

In a statement today, Dana said it is proceeding with previous plans to divest assets and other restructuring plans, which include the sale of several non-core businesses and the closure of several facilities and the shift of manufacturing operations to lower-cost sites.