Supplier bankruptcy threatens shutdown of GM plants
General Motors Co. says a contract dispute and bankruptcy filing by a key supplier could force it to close all North American assembly plants, causing millions of dollars in losses per day.
The Detroit automaker relies solely on a small private business, Clark-Cutler-McDermott Co., for 175 acoustic insulation and interior trim parts. The carmaker said parts from the supplier are used in nearly every vehicle it produces in North America.
The supplier stopped producing parts for GM after shifts on Friday and laid off its workforce, according to a source familiar with the company’s production plans. Clark-Cutler-McDermott previously had shut down business operations June 17 and laid off workers until GM was granted a temporary restraining order last month by a U.S. District judge in Detroit, forcing the supplier to temporarily resume production. That order expired Monday.
GM, in court documents, said even a one-day disruption to its supply of parts could force it to close North American plants and cease vehicle production.
“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 said in court filings.
Carmakers typically don’t keep many parts on hand in assembly plants and instead rely on an industry standard just-in-time delivery. The strategy helps free up space in factories but can cause headaches when there is a hiccup in the supply chain. Relying on a sole supplier can be risky, industry experts say. Other companies make acoustic insulation and interior trim, but none are set up to produce the exact parts GM needs.
Franklin, Massachusetts-based Clark-Cutler-McDermott filed for Chapter 11 bankruptcy last week, and is seeking to sell its business assets because of what it calls unprofitable contracts with GM that have led it to lose $12 million since 2013; it says the rate of loss has accelerated this year to more than $30,000 a day. The company, which also filed bankruptcy for its subsidiary CCM Automotive Lafayette LLC, says in court records that more than 80 percent of its revenue comes from GM.
A U.S. Bankruptcy Court hearing in Worcester, Massachusetts, is scheduled Wednesday to discuss several requests from the supplier and GM. The judge may rule on motions from the supplier to reject GM contracts, give it the authority to pay wages and benefits and obligations, use of collateral cash and GM’s motion that would require the company to deliver inventory to GM and turn over GM tools and equipment or honor its contracts with GM.
In a statement GM said, “There is a court hearing on Wednesday to address this issue and we anticipate no impact to GM’s supply between now and then.”
GM said it has not had any production disruption to date. Some GM plants have been on scheduled shutdown this week and last week around the Fourth of July holiday.
A lawyer representing the supplier declined to comment Tuesday.
Clark-Cutler-McDermott was founded in 1911. The company operates three plants in Franklin, Massachusetts, and one in Lafayette, Georgia. The company said in its bankruptcy filing that it had 229 employees, including 213 hourly workers. It listed 200 to 999 creditors, and assets and liabilities of between $10 million and $50 million.
The supplier in court documents says it believes a “turn-key” sale of assets including its equipment but without GM contracts through an auction will “provide significantly greater recoveries to all stakeholders.” It also said it could possibly lease facilities to another entity.
Clark-Cutler-McDermott had been named a GM Supplier of the Year recipient four times in the past seven years, including in 2015.
GM loaned the company millions of dollars to continue operating and also increased prices paid for parts. GM, in court filings, said it told the supplier it would completely fund the sale of the business to another entity.
In April and May, GM halted production for two weeks at four North American plants due to a supply shortage from earthquakes in Japan. A union local said the downtime it was due to an electrical parts shortage. GM has said that temporary closure would not materially impact full-year North America production plans or second-quarter or full-year earnings.