Is GM Softening on Pay-to-Play Policy?

In the face of sustained protest and threatened lawsuits, General Motors Corp. might be retreating from a controversial practice that has required certain suppliers on high-volume programs to pay up front the savings GM expects them to realize over the life of the contract.

Dubbed "Current Savings," the program has allowed suppliers to write GM a check up front to eliminate the uncertainty that they might not achieve continually declining cost targets. GM officials stress the program is voluntary, but Harold R. Kutner, GM's vice president for worldwide purchasing, recently instructed top purchasing managers to "back off" the aggressive policy, an anonymous source tells WAW. As recently as early November, Mr. Kutner defended the practice and said media attention to the issue has been overblown.

The change of heart comes in the wake of a report on GM purchasing activities by the Troy, MI, consulting firm of Baker & Co. The report, obtained by WAW, suggests three options for suppliers in responding to the "Current Savings" initiative: don't seek future work with GM; delay complying to see what other suppliers do, or be more proactive in your cost-cutting because if GM imposes upfront payments, other automakers surely will follow."

Already, DaimlerChrysler AG is asking for payments when companies are unable to meet three-year cost reduction goals.

Another possible factor in Mr. Kutner's change of tone may be that J.T. Battenberg III, president of GM's Delphi Automotive Systems unit, the world's largest automotive supplier, was among those who discussed the impact of "Current Savings" with Mr. Kutner.