GM to speed up payments to parts suppliers

September 24, 2009

GM to speed up payments to parts suppliers

Associated Press

Detroit — General Motors Co. has decided to speed up payments to its parts suppliers to help ease their cash flow problems and ultimately improve relations with the companies, a spokesman said Thursday.

The move is important, industry analysts say, because GM has had strained relations with its suppliers since the 1990s when it continually demanded cost cuts. As a result, suppliers offered new technology first to other automakers that paid better and more frequently, putting GM behind.

"The decision supports our commitment to improve our relationships with our suppliers," spokesman Dan Flores said. "We’re going to continue to look for ways to improve the ways we do business with them."

GM pays suppliers once per month and an average of 47 days after goods are delivered, Flores said. Under the new plan, GM will keep the 47-day average, but starting with Nov. 1 deliveries, payments will be made every Tuesday.

Many auto parts supply companies that make products ranging from transmissions to hoses and springs ran into serious financial problems earlier this year when GM and Chrysler shut down many of their factories for extended periods to control inventory while they were in bankruptcy protection. The shutdowns left the companies without cash payments from the automakers, and many were unable to borrow to cover expenses due to the credit crunch.

When cash starts coming in weekly, it "will allow suppliers to manage their business more smoothly by just avoiding these cash fluctuations and cash swings," Flores said.

Jim Gillette, director of financial services at auto industry consultant CSM Worldwide in Grand Rapids, said poor supplier relations that have ebbed and flowed over the years have cost GM and the other Detroit automakers the first shot at new inventions from the suppliers.

Much of the technology, including fuel-efficient, higher-performance transmissions and other items, has gone to BMW AG, which is known in the industry for paying suppliers better and more frequently, he said.

"BMW clearly understood they live and die on providing the most advanced technology on their vehicles," Gillette said. "Or else they’re not going to get the premium price for their vehicles from the customers."

GM’s Cadillac brand, which competes directly with BMW, until recently has been forced to offer big discounts to sell vehicles, he said.

The program will end up costing GM money because it won’t hold onto its cash as long and won’t benefit as much from short-term investments, Gillette said. But it should be worth it when suppliers come to GM with the next generation of new technology in two or three years.

"We’re looking for ways to run the business better," said Flores. "We want to be the manufacturer of choice for our suppliers."

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