Founded in 1975, the company “had a long history of profitability” that was reversed following a “disastrous” 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 Chapter 11 Subchapter V bankruptcy protection — an option designed for small businesses that became available in 2020.
“We’re going to be able to get 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 push through some of these (price) increases.”
Erin Industries is the latest in a string of recent bankruptcies in Michigan, where financial woes are piling up on manufacturers and the brunt of the pressure is falling on small businesses. Machine shops and lower-tier suppliers are increasingly turning to Subchapter V — a cheaper way to go broke, so to speak — to keep the lights on.
Atwell said most of its 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 problems began when the company signed an agreement to manufacture equipment and lines for Nova, a Canadian steelmaker with a base near Grand Rapids. Shortly after the deal was closed, the pandemic hit and it became impossible to source parts to fulfill the contract, Atwell said.
“The debtor’s financial condition rapidly changed from stable to unstable, due to additional costs, losses and extraordinary items due to the Nova contract,” according to the bankruptcy petition, filed on behalf of Erin Industries by attorney for Butzel Long, Max Newman.
By the time Erin Industries completed production of the equipment, Nova had already accelerated the purchase of alternative machines to maintain its line and refused to pay for the delayed equipment. It was the first time the company had run into profitability issues 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 his 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 people and operates primarily as a Tier 2 supplier. One of its most profitable businesses is its Corvette program, according to the petition. It also supplies directly to GM, Ford Motor Co. and Stellantis, according to its website.
Its revenue for 2022 is expected to drop nearly 20% from a year ago to $9 million. Atwell said the key to staying afloat will be retaining suppliers on better contracts. “We need to retain our customer base, which appears to be able to do so, and get out of the debt created by the Nova Catastrophe,” he said.