The lessons for every small business from the Trident collapse

The insolvency of tooling and car parts manufacturer Trident Tooling marks the end of a two-year saga that pitted a small Adelaide-based company against Ford Motor Company in the United States. The David and Goliath struggle ended with Trident appointing John Morgan of Rodgers Reidy as voluntary administrator of Trident Tooling and Trident Plastics yesterday. Trident directors claimed it suffered a cash flow crisis because it was owed substantial amounts by Ford in the US for work done two years ago.

Trident claimed Ford had not paid a total of $3.4 million, including the return of discounts to secure contracts that Ford subsequently gave to another supplier. Ford said last week in an email to Trident that it was willing to review about $440,000 in unpaid debts to Trident but that came too late to save the company from insolvency.

National Australia Bank stepped in late yesterday and appointed John Hart and David Kidman of Ferrier Hodgson as receivers of Trident Tooling.

A third company in the group, Active Plastic Industries, was voluntarily liquidated last week and is in the hands of Chris Powell at KordaMentha. However, it is believed that Ferrier Hodgson was last night appointed receivers of API by NAB.

About 200 workers will be affected by the insolvency of the three companies in the group which remains a supplier of strategic car parts.

The Trident insolvency carries several lessons for other Australian companies contemplating becoming part of the supply chain of a global multi-national.

The first lesson is that US multi-nationals are so bureaucratic that the left hand often does not know what the right hand is doing.

Secondly, decisions made in the upper levels of management at a multi-national are often not necessarily those that are executed by the staff lower down the management chain.

Thirdly, business should be very wary of signing up to radical sourcing programs that upset the status quo and threaten the long-standing relationships between internal purchasing staff and domestic suppliers.

Finally, when negotiating the payment of unpaid debts, assume the worst from the word go and seek out alternative funding to cover the cost of writing off the debt.

Trident, which was founded in 1993 by twin brothers Steen and Jan Saurbrey, learned all these lessons the hard way.

At its peak, Trident was turning over $60 million a year and employed 350 staff. It remains a key supplier to GM-Holden, FPV, HSV and Mitsubishi Australia and Ford.

The contract with Ford in the US was awarded four years ago when Ford was seeking international suppliers. However, the contract was fraught with difficulties because of a litany of changes to design and engineering aspects of the work demanded by Ford.

Trident told Business Spectator it had been trying to recover unpaid funds from Ford in the US for about nine months. However, Ford purchasing executive Sue Krawczyk claimed in an email received by Trident last week that all claims had been resolved in December 2007.

Krawczyk said Ford was willing to consider claims made by Trident totaling $436,154 relating to unpaid airfreight expenses and work done for Ford’s D472 Program, also known as the Lincoln.

Trident tried to escalate the issue in April by requesting assistance from Ford Australia. But the local arm of Ford said it could not intervene. Instead it provided Trident with accelerated payment on parts manufactured by API to assist with immediate cash flow.

At the eleventh hour, Trident tried to use API’s strategic supply contract with Ford Australia as a bargaining chip in the tortuous negotiations with Ford in the US.

Trident told Ford Australia it would stop supplying parts from API to Ford Australia for the Ford Territory and Falcon models unless the local arm helped the company to resolve its receivables problems with the US parent.

Ford Australia tried to help. Ford Australia’s vice president, purchasing Sam Casabene was involved in a “cross functional” team that involved staff from Ford Australia trying to convince a team at Ford in the US to review the claims made by Trident.

But when there was little progress on this front, Trident’s directors warned Ford that it could not continue to supply parts from API if the issues with the US were not resolved.

Last Monday, Trident claimed an “excusable event” under its contract with Ford Australia and stopped the supply of parts.

This resulted in the Ford production line being stopped on Thursday and 900 Ford employees at Broadmeadows stopping work. Ford claimed a further 864 employees in Geelong would be affected as well.

Trident subsequently made a decision last week to voluntarily put API into liquidation. Once that happened the game of brinkmanship was over.

Ford quickly paid KordaMentha $250,000 to get the API factory working on Thursday and Friday last week. It then removed the tools from the API plant on the weekend and set them up in the premises of another supplier in Melbourne, Venture Industries. The Ford production line resumed on Tuesday.

A spokeswoman for Ford Australia said the equipment removed from API’s factory belonged to Ford. However, the appointment of Ferriers as receivers of API means NAB believes it has a charge over the API assets. It will be interesting to see if Ferriers is willing to challenge the actions condoned by KordaMentha.

Trident claims that if the company had known months ago that Ford would not pay the amount claimed by Trident then the company would have sought an alternative. Other avenues included selling the business, getting a partner, refinancing or an orderly winding up.

Trident says the first the company knew that Ford was disputing the claims was in an email received last Wednesday morning.

This article first appeared on Business Spectator.