TTAC has secured a letter from GM’s purchasing department whereby the ailing American automaker informs its suppliers that it’s changed its payment terms. GM used to pay its indirect (i.e. non-production) suppliers “second day, second month;” roughly 35 days from receipt of goods. The new agreement stipulates payment will be made at 60 days from receipt of invoice. In effect, GM’s cash position has deteriorated to the point where it’s borrowing from its suppliers to survive. The letter was sent to GM suppliers on September 26. The new policy went into effect on October first, giving suppliers no chance to plan or prepare for the change. Their cash flow is now under threat; many won’t be able to arrange the financing needed to carry the cost. If this policy is widened to direct, production suppliers, the impact could be catastrophic. [Thanks to you know who you are]
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Stretching out payments to suppliers is the next to last sign that a company is toast. It’s always followed by laying off employees. Ask me how I know.
And I still support free-market capitalism.
This will be the final nail in Delphi’s coffin.
And when Delphi goes, GM will not be far behind…
This is madness. A thousand parts in a car, and one supplier going to the wall will stop the entire line. So GM will push the suppliers closer to the edge…
Adub:
“Stretching out payments to suppliers is the next to last sign that a company is toast. It’s always followed by laying off employees. Ask me how I know.”
I ask you, how do you know?
Oh please, everyone, let’s have a little perspective here.
Didn’t Chrysler do a similar thing a few months ago and didn’t everyone predict that they would file for bankrupcty within a few months? That this was the final act of a desperate company?
What happened…..?
For the Walmarts and Home Depots, it’s not a sign of the end but just standard operating procedure. Suppliers would be thrilled if these companies paid in 60 days.
However, for a supplier that was used to GM’s payment terms, this change would be painful.
bleach, Right you are. Big retailers with clout are downright abusive.
GM pays in less than sixty days? Since when?
As a former executive for a Tier 1 supplier to GM, let me tell you, they NEVER pay on time regardless if they have the money or not. Perhaps it was because we were relatively small, but they averaged about 120 days from invoice to payment. This was when times were good. I couldn’t imagine what they are actually doing now. There were times when we even had to threaten to sue to get paid! This was nearly 10 years ago! Chrysler was pretty much the same way, and the imports were pretty good about paying on time. Guess who we worked harder for?
This is similar to what Chrysler did. Apparently it does not impact production suppliers, only “Indirect Payables” meaning everyone else. But it does stretch the payment time thus providing GM with more supplier credit. On the other hand, GM is paying on a weekly basis instead of monthly which is some small consolation.
golf4me-the annual PPI survey of teir1’s says it is still the same.
These companies are not just badly managed in one or two areas. They are rotten on many levels.
That flushing sounds is our tax dollars at “work”.
Bunter
Rix:
“This is madness.”
Madness!? THIS IS GM!!!
At the moment, production material suppliers like Delphi are not affected by this…..this is for indirect material…..machinery, toilet paper, etc…….
Of course this could be an omen for others…the sky hasn’t fallen yet, go back to sleep.
Yep, they’re going to the Wal Mart/Home Depot payment model. It may eventually backfire, it may not, depends on whether there’s any profit still left to be made.
At HD, certain vendors refused to do business with HD any more because they were 180 days in paying when things were actually good. Wasn’t worth some vendors’ time to essentially finance them for six months and watch their profits evaporate.
The end is nigh.
American-Leyland, kind of has a nice ring to it, eh?
>>American-Leyland, kind of has a nice ring to it, eh?
Bingo!
Can’t wait to hear Lutz telling us about the great quality of the new Pontiac Spitfire, err, I mean Pontiac …
Look into the building industry and how contractors so often abuse sub-contractors in regards to payment or lack there-of.
Sadly, it is the home owner who gets shafted when the sub-contractor is doing remodeling work or whatever upon an already-owned abode.
Gotta’ love the USA economic system.
Do unto others before they can shaft thee.
And I am supposed to fight all enemies foreign and domestic to defend that?
BAH!!!!!!!!!!!!!!!
Wait, folks, this announcement is specifically for INDIRECT suppliers.
This does not include Tier-1s or other suppliers whose products directly make up a car or other production product.
Indirect suppliers are responsible for things such as office supplies, maintenance supplies, soap in your bathroom office bathroom, coffee for the guard shack, etc.
This does pay them weekly (more often)
“NEW YORK (CNNMoney.com) — General Motors is not considering bankruptcy, the company said in a prepared statement Friday morning. The statement was in response to the company’s precipitous stock price decline the previous day, a spokesman said.”
http://money.cnn.com/2008/10/10/news/companies/gm_no_backruptcy/index.htm
Denial, it is not just a river.