GM Moving Tools From Struggling Suppliers

Special Coverage

North American Int’l Auto Show

DETROIT – Contractors for General Motors Corp. spent much of the Christmas holiday moving more than 700 tool sets from about 15 suppliers that were struggling to meet the terms of their agreements, the auto maker’s purchasing chief says.

“We don’t do this because we like to do it,” Bo Andersson, group vice president-global purchasing and supply chain, tells journalist here at the North American International Auto Show after an event recognizing GM’s top suppliers.

“When we see suppliers struggle, we say, ‘Where do we have open capacity?’” he says. “We are also helping suppliers restructure within. They need our support, for instance, to move from two assembly plants to one in their operations. We are very happy to do that. We need to help everyone to take out cost.”

Not all of the affected 15 suppliers were in bankruptcy or on the way there, Andersson says. “Some of them were owned by hedge funds that lost their interest.”

The most visible of the 15 was Cadence Innovation, which filed for bankruptcy in August. The company supplied instrument panels for GM’s successful Lambda cross/utility vehicles, such as the Buick Enclave.

GM says it tried without success to help Cadence sell the business. In December, the auto maker sued when the supplier said it intended to liquidate assets. GM says it had to move the tools to another supplier to protect its interests.

“We don’t do this because we like to do it,” says GM’s Bo Andersson.

Some 80% of the Cadence business remains based in Michigan at other supplier facilities, while the rest has moved to plants in Virginia, Georgia, Ohio and Ontario, Canada.

Ironically, at this same event two years ago, Andersson recognized Cadence as one of GM’s top 15 suppliers and praised the company for exemplary performance.

“We know where our best suppliers are, and we will always go out of our way to take care of them first,” he says. “It’s a tough message, but it’s not something we created yesterday. The best in each category will have a chance to be the first ones to take over new business or get new business opportunities.”

Andersson describes GM’s supplier relationships, overall, as more constructive and stable than they were three or four years ago, due in part, ironically, to the enormous challenges facing the North American supply base.

“Today it’s about survival. We don’t have time to BS. We work on the issues, on both sides,” he says. “I think we have been able to establish a better level of trust because we are in a much tougher situation. People see the difference.”

Ironically, when times are good and companies are profitable, “you’re never happy,” Andersson says. “But in this environment, you need to be very open, very clear on your plans. And you need to have a balance between optimist and realist. Many times people don’t like what we tell them, but we tell them the truth.”

He refers to the 11-week strike at American Axle Mfg. & Holdings earlier in 2008 as the beginning of an enormously stressful time for GM and its supply base. AAM is a critical supplier to GM’s truck programs, and the strike forced the auto maker to slow or idle production at more than 30 plants.

Also in 2008, GM, as with other auto makers, wrestled with consumers steering away from pickups and SUVs, along with V-8s and V-6s, in favor of smaller cars and 4-cyl. engines as gasoline prices approached $4 a gallon.

In May, 47% of installed capacity was dedicated to V-8s for GM and only 11% for I-4s, Andersson says. The auto maker wanted 40% of capacity devoted to I-4s.

He praises Mexican engine-block manufacturer Nemak SA for scaling up output of I-4 blocks and heads from 11,000 units a week to 23,000 in the span of three months with no downtime, while meeting all quality requirements.

Andersson says the market transitions, as well as the plummeting production volumes, have been particularly hard on suppliers. GM will make that point clear as the auto maker submits proposals to the government in coming weeks to validate emergency loans approved by President Bush.

“We view (suppliers) have given a lot during the past couple of years, because they are living with some very difficult financial situations on getting financing,” he says.

When queried whether suppliers will be asked to do more as part of the government-supervised restructuring of GM, Andersson says, “We do it every day, and we will continue to do it.”

The auto maker has 1,300 suppliers in North America and 3,000 globally, and it’s impossible to say how many are distressed today, says Andersson. “All of us are suffering,” he says – some with the flu, some with pneumonia.

Most are paid 47 days after they deliver their products, and he intends to keep that payment structure intact. “We think it’s a competitive payment.”

At the awards ceremony, Andersson tries to rally the supply base: “The challenges that are here will not be here forever,” he tells them, adding tough times should be viewed as opportunities for long-lasting change.

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