Cooper-Standard renegotiating with customers to recoup $100 million in losses

NOVI, Mich.—Cooper-Standard Automotive Inc. reported a net income loss of $123.2 million for the third quarter due primarily to the production volatility of customers that the supplier is now asking to help absorb the hit.

The Northville-based rubber and plastic parts maker, whose customers include Ford Motor Co., General Motors Co. and Stellantis NV, saw profits tank on sliding sales of $526.7 million, down 23 percent from the same time last year, according to its Wednesday earnings report.

The company lowered its full-year sales guidance to $2.3 billion to $2.34 billion from previous guidance of $2.45 billion to $2.6 billion and said it expects an adjusted EBITDA loss of up to $25 million instead of the previously anticipated gain of $75 million to $105 million.

A dramatic decrease in auto production due to the global microchip shortage and soaring commodity costs have slammed the businesses. Cooper-Standard said it is renegotiating contracts with customers in hopes of recovering some financial losses.

"We're targeting recovery of more than $100 million overall," Chairman and CEO Jeff Edwards said on a call this week with investors. "We've made good progress in our negotiations to date but have more work ahead to achieve the target."

Cooper-Standard is far from the only automotive company hemorrhaging money amid the supply chain and microchip crisis. The semiconductor shortage is anticipated to cost the automotive industry $210 billion this year, according to experts.

Companies have aimed to mitigate financial damage by implementing a host of cost-saving strategies, but at Cooper-Standard none have been sufficient to keep pace with losses, executives said. During its earnings call, the company offered another example of how suppliers are seeking to be made whole and gave a peek into negotiations with customers typically kept under a tight lid.

The company did not name customers but indicated that some have been more cooperative than others. Edwards said Cooper-Standard will know how much money it can recoup by the end of the year.

"We've asked for recoveries starting (Oct. 1)," he said. "Obviously, we can ask whatever we want to, and we're in the stage of negotiation where in some cases, we've achieved that. In other cases, the negotiations are still ongoing."

One of the main asks by Cooper-Standard is price indexing, to reflect the rapid rise in the cost of raw materials, which it said cost the company an additional $21 million in the third quarter and an expected $60 million for the full year.

"Commodity inflation has continued to ramp up much faster than we had anticipated each successive quarter of the year," Jon Banas, executive vice president and CFO of Cooper-Standard, said on the call.

While price indexing often was not worked into past contract terms, that will change for future deals.

"It's our objective going forward that for the new business we're quoting and the new business that will come into our company in the future years, indexing is what we want to do," Edwards said.

Edwards said the company does have some price indexing with some customers on certain commodities. He said that historically, the company has recovered 40 percent-60 percent of raw material inflation costs, but that was "prior to this hyperinflation moment that we're in right now."

Despite burning $71 million cash in the third quarter, compared with a positive cash flow of $89.2 million in the same period last year, the company maintained a solid cash balance of $253 million.

"We expect to sustain a level of liquidity that will sustain ongoing operations and the execution of planned strategic initiatives," Banas said.

One such initiative is diversification of its business. Cooper-Standard made progress on that front with a new commercial agreement licensing its Fortrex material to a global footwear manufacturer. Edwards declined to name the company or disclose terms but said the 10-year deal will "offset all of the investments we've made in our applied materials science business to date."

The new business win was a bright spot in an otherwise bleak financial update.

"In terms of the outlook, you could say we're planning for the worst with headwinds continuing but remaining optimistic that strong end consumer demand will drive a rapid rebound in light vehicle production when widespread supply chain challenges begin to be resolved," Edwards said.