Founded in 1975, the company “had a long history of profitability” that reversed as the result of a “disaster” deal with Nova Steel USA Inc., Steven Atwell, owner and president of Erin Industries, told Crain’s.
Now the company is hoping for debt relief and leverage to restructure unfavorable contracts by filing for Subchapter V of Chapter 11 bankruptcy protection — an option designed for smaller businesses that became available in 2020.
“We’re going to be able to work through this, and I think we’re going to survive. … I know we’re going to survive,” Atwell said. “Chapter 11 gives us some leverage to renew our contracts and try to get some of these (price) increases through.”
Erin Industries is the latest in a string of recent bankruptcies in Michigan, where financial woes are piling up on manufacturers and the weight of the pressure is falling on smaller companies. Machine shops and lower tier suppliers are increasingly turning to Subchapter V — a cheaper way to go bankrupt, as it were — to keep the lights on.
Atwell said most of his customers, which include major automakers and suppliers, offered price increases on steel, but not on other inputs, such as labor and fuel.
However, the real trouble started when the company signed a deal to manufacture equipment and lines for Nova, a Canadian steel maker with a base near Grand Rapids. Shortly after the deal closed, the pandemic hit and it became impossible to procure parts to fulfill the contract, Atwell said.
“The Debtor’s financial condition rapidly went from stable to unstable, as a result of extra costs, losses and extraordinary items due to the Nova contract,” according to the bankruptcy petition, submitted on behalf of Erin Industries by Butzel Long attorney Max Newman.
By the time Erin Industries completed production of the equipment, Nova had already expedited the purchase of alternative machines to keep its line going and refused to pay for the delayed equipment. It was the first time the company had run into profitability problems since Atwell’s father started it 40 years ago, Atwell said.
Nova could not be reached for comment Thursday.
Atwell said he doesn’t blame Nova for acting in its best interest.
“I don’t blame them. … I’m not happy with them,” he said. “They had to produce parts.”
Nova is the largest creditor in the case, with $869,865 owed by Erin Industries, according to court documents. Erin Industries said it has $4.8 million in assets and up to $10 million in estimated liabilities.
The company employs 41 workers and functions mainly as a tier-two supplier. One if its most profitable pieces of business is its Corvette program, according to the petition. It also supplies directly to GM, Ford Motor Co. and Stellantis, its website said.
Its revenue for 2022 is anticipated to fall nearly 20 percent from last year to $9 million. Atwell said the key to keeping afloat will be to retain suppliers under better contracts.”We have to keep our customer base, which it looks like we’re going to be able to, and to get out of the debt that was created by the Nova disaster,” he said.
