C&A has $37M in incentives chips
RALEIGH - Auto supplier Collins & Aikman has generated $37 million in North Carolina tax credits under a law aimed at creating jobs, even though the now-bankrupt company since 1997 has shrunk its work force in the state by 70 percent.
The tax credits were "generated," in North Carolina Department of Commerce parlance, because of research and development undertaken by the company, which manufactures interior fabrics and other supplies for the car industry.
Such credits are allowed under the William S. Lee Act, a state law aimed at generating new jobs. The credits make C&A the largest single claimant for Lee credits since 2002, easily eclipsing giants such as IBM, GlaxoSmithKline and Cisco Systems.
Now, it appears C&A - or at least some of its divisions - will end up on the sale block, and any buyer would inherit the credits, according to an official in the North Carolina Department of Revenue. Dearborn, Mich., auto supplier Plastech Engineered Products Inc., on Aug. 9 announced it was offering $1 billion in cash to purchase the remnants of the company. C&A officials say they are studying the offer.
In 1997, C&A employed 7,000 people at 18 North Carolina plants stretching from the Triangle to Charlotte. Nowadays, the company has a North Carolina worker roster of just 1,800 at seven sites, says company spokesman David Youngman.
The company has three plants in Roxboro and one each in Troy, Farmville, Albemarle and Old Fort.
C&A is one of the nation's top auto suppliers, but its financial fall has been a horrific one. Until May, the company was headed by David A. Stockman, who gained fame during the Reagan administration as an architect of "trickle-down economics" and for his heavy hand with the budget ax.
The reason for Stockman's resignation has been shrouded in mystery, especially given that it came just a week before the company filed for bankruptcy. The company blames slumping U.S. auto production, higher commodity prices, stiff competition and bloated debt for its financial woes.
Youngman declines to offer much of a glimpse of the firm's future post Chapter 11 reorganization. "Obviously there are a lot of possibilities, and included in that is the sale of divisions," he says. "We are currently working on a bankruptcy plan."
If C&A accepts an offer to sell, the new owner could continue to take the existing credits as long as it maintains employment at the facilities or keeps manufacturing equipment in place, says Greg Radford of the North Carolina Department of Revenue.
Through the years, C&A has been no stranger to officials at the North Carolina Department of Revenue. The company piled up $37 million in tax credit chips with filings submitted from 2002 through 2004.
In 2004, the firm filed for $12.6 million in R&D credits, but its bottom line allowed it to take just $95,000 off its North Carolina returns. The remaining $11.6 million remains on the books for use by C&A - or any company that buys C&A.
With $3.9 billion in sales in 2003, C&A is one of the largest U.S. auto suppliers, turning out fabrics and other parts to the big three U.S. automakers as well as to Japan's Toyota, Honda and Nissan.
As best as can be determined during a turbulent period for the company, C&A's global work force stands at about 23,000 in plants scattered in 17 countries.
C&A is meeting its immediate liquidity demands with help from JPMorgan Chase, which is providing debtor-in-possession financing. A who's-who list of customers has offered up $83 million in temporary price increases on contracts. The customers, including DaimlerChrysler, Ford and General Motors, rushed in to help C&A because, in the auto industry, changing a supplier isn't a simple matter.
Parts are made according to safety and other considerations, explains Jim Gillette, director of supplier analysis for CSM Worldwide. "Collins accounts for roughly 50 percent of North American floor systems," he says. "And I don't think any automakers are going to be putting out cars without interior carpets." Neither Gillette nor members of his family own shares of C&A. CSM Worldwide does supply the company with auto industry forecasts.
The industry's reliance on C&A for parts, in other words, all but guarantees that production will continue at C&A's plants.
As for who might end up owning C&A's North Carolina tax credits, time will tell.
