Suppliers feel the heat from GM’s impending bankruptcy

Thursday, May 28, 2009

Daniel Howes

Suppliers feel the heat from GM’s impending bankruptcy

As many as 1,400 suppliers to General Motors Corp. today expect to receive their cut of roughly $2 billion in payments from the beleaguered automaker, teetering near a historic bankruptcy filing likely to come as early as Monday.

The payments, part of GM’s "MNS-2" supplier program, are scheduled to be transmitted electronically to cover parts and materials mostly delivered during April, before GM began aggressively halting production at many — but not all — of its North American plants.

What the suppliers don’t know: When they’ll see the next checks amid GM’s rolling production shutdown and an all-but-certain bankruptcy filing. Nor do they know yet whether operations outside the United States may be affected.

"Part of what we’re very anxious about is which GM subsidiaries may file and which may not," a senior finance executive for a major Metro Detroit-based supplier told me Wednesday, requesting anonymity because of the sensitive nature of the situation.

GM owes his company $30 million for parts shipped from plants around the world, $7 million of which should be paid today by GM. Another $3 million, the supplier estimates, would be in jeopardy from a GM bankruptcy filing in the United States, with the balance owed by GM’s foreign units in China, Latin America and deeply troubled Europe.

This is getting very interesting. A confluence of business interests, presidential power and geo-political jockeying — not GM’s cars and trucks — are competing to decide whether GM and its global operations emerge from the morass.

Or whether the sprawling network intended to lead GM into a more promising future collapses into liquidation and legal wrangling that takes others, such as long-bankrupt Delphi Corp. and other suppliers, with it. Either way, Detroit’s auto industry will never be the same.

How much imperiled suppliers are likely to be paid before a bankruptcy filing, particularly for material delivered overseas, depends as much on foreign governments as it does on a bankruptcy judge, the U.S. Treasury and GM itself.

In Germany, home to GM’s Adam Opel GmbH unit, the center-right government of Chancellor Angela Merkel appears likely to backstop Opel’s operations or finance a transfer to one of several suitors or both, likely ensuring payments owed to suppliers.

That’s only a start. As wrenching as Chrysler LLC’s slide into bankruptcy has been, likely to be followed soon by a landmark GM filing, the sobering fact is that we’re still in the opening stages of the tempering of Detroit.

No one, including President Obama and his auto task force, knows how most of it will end. But this much is certain: It’ll be a hot summer.

Suppliers, many of them barely hanging on, are looking at months of idled plants and badly shrunken receivables, meaning August, September and October are likely to be more harrowing than April, May and June. Enter Michigan Gov. Jennifer Granholm and her allies in the Legislature to secure temporary federal support from Obama’s auto community czar, Ed Montgomery.

Without functioning suppliers able to pay their workforce and operate plants, GM and Chrysler plants can’t run, can’t ship assembled vehicles and can’t book revenue. Stalled suppliers stall any restart of automakers straining to slip the bonds of bankruptcy.

As public (and media) attention has focused intensely on GM’s talks with the United Auto Workers and its failed debt-to-equity swap offer to thousands of unsecured bondholders, confirmed Wednesday, the myriad suppliers who employ far more people in more communities than GM itself are scrambling to answer a simple question:

What will this giant’s slide into federal bankruptcy court mean for their business, their liquidity and their own chances of landing in a bankruptcy court near them? How likely is GM to execute some sort of global bankruptcy that would reverberate from Detroit and New York to Frankfurt, London, Moscow and Sao Paolo?

Even more: Are there legitimate exit strategies for weary suppliers tired of the start again-stop again orders from customers like GM or Chrysler unsure about their product plan, how long current models will run and when the replacements arrive?

Underpinning the conditions that coalesced to bring GM and Chrysler to this reckoning is a simple human response when patience is lost and the excuses don’t resonate: "We’re done" and "no more."

Private lenders like banks, hedge funds and many investors already have said as much, hastening the rush of GM and Chrysler into federal supervision. Don’t think more than a few suppliers wouldn’t like to do the same — after the checks clear.

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