GM Faces ‘Catastrophic’ Assembly Disruption After Parts Supplier Goes Bankrupt

[ccap41]

"A Massachusetts-based parts supplier you’ve probably never heard of could force General Motors’ entire North American operation to grind to a halt.

 

Clark-Cutler-McDermott Co. stopped making acoustic insulation and trim pieces for GM vehicles on Friday after declaring Chapter 11 bankruptcy, a situation it blames on money-losing contracts signed with the automaker, a source told The Detroit News. 

 

The supplier’s parts are found in almost every U.S. vehicle GM builds. With its workforce now laid off, and the supply chain disrupted, GM faces a grim situation — a shutdown of its assembly operations and millions of dollars in losses per day.

 

GM went to a U.S. District judge last month to impose a temporary restraining order on Clark-Cutler-McDermott, but that order expired at the beginning of the week. The supplier previously shut down on June 17, but the legal intervention briefly kept the supply of parts flowing.

 

In a court filing obtained by The Detroit News, GM spells out how serious the situation is:

   A continued disruption in the supply of component parts will also cause a catastrophic disruption in the supply chain and the operations of countless GM suppliers, dealers, customers, and other stakeholders, including the potential layoff of tens of thousands of workers in the event GM’s North American operations are completely shut down.

 

The automaker is over a barrel — GM doesn’t have a backlog of parts to work with, as its contract with Clark-Cutler-McDermott was of the just-in-time delivery variety. No other supplier makes the parts Clark-Cutler-McDermott provides GM.

 

The supplier, which deals mostly with GM, claims its contracts caused it to lose $12 million over the past three years. In the court filing, GM claims it loaned the supplier millions of dollars to continue production.

 

A U.S. Bankruptcy Court hearing scheduled for today will map out where both companies go from here. Any number of scenarios could come from the ruling, including the supplier being forced to honor its contract with the automaker. So far, there haven’t been any assembly disruptions related to the issue."

http://www.thetruthaboutcars.com/2016/07/gm-faces-catastrophic-assembly-disruption-parts-supplier-goes-bankrupt/

[ccap41]

Something needs to get sorted out and quickly because if GM can't produce new cars.. that leave a lot of people not working even if it's a week or few days that's money out of everybody's pockets not just GM's. 

[G. David Felt]

OUCH that really blows, I hope it does not affect the BOLT.

[Drew Dowdell]

Loans don't counteract continuous losses per unit. They simply delay the inevitable. GM of all companies should know that.

[cp-the-nerd]

Loans don't counteract continuous losses per unit. They simply delay the inevitable. GM of all companies should know that.

 

I agree. In this age where automakers are trying to squeeze every penny out of production, I wouldn't doubt if GM more or less trapped a supplier in this situation. They'll have to take it on the nose and restructure the contracts. Obviously keeping production going is more important than trying to get a 5 dollar trim piece for $3 or whatever.

[ccap41]

 

Loans don't counteract continuous losses per unit. They simply delay the inevitable. GM of all companies should know that.

 

I agree. In this age where automakers are trying to squeeze every penny out of production, I wouldn't doubt if GM more or less trapped a supplier in this situation. They'll have to take it on the nose and restructure the contracts. Obviously keeping production going is more important than trying to get a 5 dollar trim piece for $3 or whatever.

 

This is what I was thinking of when I first read that they got into a bad contract with GM. But it does bring up the counter argument, why would they sign a bad contract if it'll put them under? Unless when it was signed the forecasted fixed/variable costs were much lower and something happened that increased their costs way above their past projections. 

[FordCosworth]

http://www.autonews.com/article/20160713/OEM01/160719925/gm-averts-n-a-shutdown-gains-access-to-tooling-parts-at-bankrupt

[G. David Felt]

http://www.autonews.com/article/20160713/OEM01/160719925/gm-averts-n-a-shutdown-gains-access-to-tooling-parts-at-bankrupt

Bummer, but that web site does not come up for me, but found what I think might be the same story here:

 

http://www.autonews.com/article/20160713/OEM01/160719925/gm-averts-n.a.-shutdown-gains-access-to-tooling-parts-at-bankrupt

 

Also Detroit Freepress covered it too

 

http://www.freep.com/story/money/cars/general-motors/2016/07/13/gm-shutdown-averted-settles-mass-supplier/87046848/

[cp-the-nerd]

 

 

Loans don't counteract continuous losses per unit. They simply delay the inevitable. GM of all companies should know that.

 

I agree. In this age where automakers are trying to squeeze every penny out of production, I wouldn't doubt if GM more or less trapped a supplier in this situation. They'll have to take it on the nose and restructure the contracts. Obviously keeping production going is more important than trying to get a 5 dollar trim piece for $3 or whatever.

 

This is what I was thinking of when I first read that they got into a bad contract with GM. But it does bring up the counter argument, why would they sign a bad contract if it'll put them under? Unless when it was signed the forecasted fixed/variable costs were much lower and something happened that increased their costs way above their past projections. 

 

 

Businesses make bad deals all the time, especially when a larger company strong-arms them into it. Who knows, maybe there were incentives for managers, maybe costs changed. GM itself went into their bankruptcy in an unavoidable slow-motion car accident because of union contracts more than anything else making the company unprofitable.

[hyperv6]

Companies fail for many reasons. Some for a near term bad decision or long term. 

GM made a long history of bad deals with the unions and paid the price for it years later when they could not support the deals that they made. 

Hostess bought up bakeries for 90 years regionally and ended up with something like 90 different unions and many bad deals that in the end with higher cost and lower profits could not be sustained. 

 

Other companies like Rubbermaid were built on contracts that were sustainable when they sold much of their products everywhere but when Walmart became their main retailer the push for lower prices did a lot of damage. 

The trick anymore is to not make long term deals and to keep a company to where they can react to changes fast. Too often anymore things happen that unlike a legacy issue they can not always see  a market change coming or the way that business is done. 

In the case here they were working with higher legacy cost and the fact that GM pressed them for lower prices. They were screwed if they said no and if they said yes it just pushed out the end a little farther. 

The deal GM did here is all that could be done as GM needed them badly and odds are things will get worked out. The company will go bankrupt and get a new start and new deals will be struck that will make things better. 

We saw this a lot in the trucking industry as many went under and came back under different names with new better Teamster deals.