GM avoids production disruption with supplier agreement
General Motors Co. said its North American production will not be disrupted following a U.S. Bankruptcy Court judge’s ruling Wednesday to allow a supplier that filed for bankruptcy last week to immediately end its contract with the Detroit automaker.
A lawyer representing the Detroit automaker in a Worcester, Massachusetts hearing, said the company has found other suppliers to make acoustic insulation material and interior trim parts for vehicles it builds in North America. GM will be allowed to remove its tooling from Clark-Cutler-McDermott plants and will receive inventory it has on hand.
“We have reached a settlement with Clark-Cutler-McDermott and do not anticipate any disruptions to our supply chain or business,” GM said in a statement Wednesday.
It was not immediately clear how quickly GM could get its tooling from the small private business based in Franklin, Massachusetts, and move it to other suppliers, who in turn would start productionand get parts into GM plants.
GM would not name the suppliers that are receiving the work, spokesman Patrick Morrissey said.
The Detroit carmaker, in court documents, had said even a one-day disruption to its parts supply could force it to halt North American vehicle production and a supply disruption could cost it tens of millions of dollars per day.
“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.
Andrew Troop, a New York attorney representing GM, said in court that “GM had no choice” but to seek alternate suppliers to build the parts after Clark-Cutler-McDermott stopped making them.
“In response to the debtor’s decision to stop operations, GM has cut a deal intended to minimize its harm by moving onto other suppliers,” he said.
The supplier of 175 acoustic material and interior trim parts for GM North America vehicles ceased production Friday.
No GM plants have closed, but the automaker in court documents had said Clark-Cutler-McDermott, which said it has lost $12 million since 2013 and more recently has been losing more than $30,000 a day, wanted the judge to allow it to stop producing parts for GM, and to allow it to use collateral cash to pay bills, including employee wages. Judge Christopher J. Panos approved those motions.
The supplier, which said more than 80 percent of its revenue comes from GM, blamed the low prices from GM on its parts as reason for its demise.
Troop blamed the supplier’s money losses on “inoperational inefficiencies and managerial decisions.”
Charles Dale, an attorney representing Clark-Cutler-McDermott, said the companies had come to agreements on most issues, including agreeing to turn over finished inventory to GM for $2.9 million, including balances owed. He said the company and GM agreed for GM to come into its facilities and to remove tooling, but the supplier would retain its equipment.
GM had loaned the company millions of dollars to continue operating over the past few months and also increased prices it paid for parts.
Stephen M. Gross, attorney and chairman of the business restructuring services department at McDonald Hopkins LLC in Bloomfield Hills, said GM continues production without any significant disruption and “has an organized process to stage its exit or resources to another supplier. He said Clark-Cutler-McDermott should be in a good position for a turn-key sale with its equipment.
The surprising part, said the more than 30-year business restructuring veteran, is that the conflict got this far without resolution. He said the ideal situation would have been for the company to meet early in the process with GM and the bank to restructure or potentially find an acceptable buyer that would retain GM’s business.
Clark-Cutler-McDermott, a four-time GM Supplier of the Year, 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.
Dale said Clark-Cutler-McDermott wants to sell its business and equipment in a “turn-key” sale to another company and hopes employees can return to work. The firm was founded in 1911 and has three plants in Franklin, Massachusetts, and one in Lafayette, Georgia. It said it has 229 employees.
Automakers have been criticized in the past for relying on single suppliers to source key parts. The industry works in a just-in-time delivery fashion, meaning automakers keep few parts stocked in assembly plants and rely on continuing shipments. The method helps with space issues in factories but can cause problems when there is any hiccup in the supply chain.
Following the 2011 Japan earthquake and tsunami, automakers including GM faced production shutdowns when suppliers were impacted in Japan.
GM earlier this year was forced to shutter four North American assembly plants for two weeks when it faced a supplier shortage because of earthquakes in Japan. The carmaker has said the temporary closure would not materially impact its full-year North America production plans or its second-quarter or full-year earnings, and that production could be made up this year.
Last month, GM Chairman and CEO Mary Barra told reporters ahead of its annual shareholders meeting in Detroit that more than 70 of its suppliers were impacted by the Japan earthquakes this spring, but it only had a major issue with one supplier. She said that supplier was having some financial problems and was consolidating facilities at the time.
“We’ve learned from this one, but I think dramatic lessons learned from the tsunami enabled us to minimize the impact,” Barra said.
Staff Writer Michael Wayland contributed.