North American car carrier, Allied System Holdings, has re-entered Chapter 11 bankruptcy proceedings this week following filings against the company from two lenders that have been involved in litigation against it since 2009.
The action, which involves its 18 subsidiaries including Allied Automotive and Axis, follows a previous filing for Chapter 11 protection in 2005; Allied emerged from the process in 2007 only to be quickly hit by reduced vehicle sales that characterised the global downturn in 2008.
According to the Wall Street Journal, Allied supplied court documents to the US Bankruptcy Court in Wilmington, Delaware that state it stopped making interest payments on its first lien credit facility in 2009 when Chrysler and General Motors entered bankruptcy and reduced production. It had previously been out of compliance with a loan that has a current balance of $244m.
The company is now reported to have secured $20m in financing from lenders to support its operations during the restructuring process but has said that it will be completing the closure of terminals and locations, as well as looking for cuts in overheads and the elimination of debt, as it seeks to reposition itself as a more profitable business.
The action comes at time when carmakers and logistics providers are looking for increased capacity and improved productivity in the face of increased sales and production output in North America.
Sales for this year are expected to finish at their highest level since 2007 at around 14.3m compared to 12.7m last year, according to figures from analyst firm IHS Automotive. That figure is expected to increase to 15.7m in 2014, when housing start begin to recover in the US, and finally pass pre-recession levels at 16.2m in 2015.
However, a lack of outbound vehicle logistics investment could have a serious impact on delivery times and customer satisfaction, and in some cases even hold back growth. With Allied's declaration that it will be closing terminals and locations, questions hang over its ability to make the necessary investments.
Allied's president and CEO, Mark Gendregske, who is rumoured to be retiring from the company in October, said that the company's customers could be sure that the filing would not impact on its ability to maintain best-in-class service levels, but was not available to comment further on what the restructuring will mean in the medium term for its OEM customers.
Last year the company's search for improved profitability saw it lose significant business when it withdrew services for Chrysler and GM following a dispute over employee pay and haulage rate rises.
Facing strike action related to a proposed 20% wage cut it had proposed to staff, Allied instead tried to raise the haulage rates charged to the carmakers, something the carmakers rejected the increase given their established contracts still had a another year and a half to complete (read more here).
Today, Allied has no remaining business with GM or Chrysler. This year, Chrysler has also begun to trail an in-house fleet of car carriers based in Canada, which will also operate for deliveries between Ontario and Detroit, as well as to the port of Baltimore (read more here).
Neither Chrysler nor GM had any comment related to the most recent Allied developments or their response to last year's service withdrawal.
