General Motors executives are breathing a sigh of relief after the automaker reached a deal with a supplier that threatened to shut down GM’s entire U.S. assembly operation.
The automaker hammered out an agreement with the bankrupt Clark-Cutler-McDermott Company, a supplier of trim and acoustic insulation that GM had been propping up financially since March, the Wall Street Journal reports.
Under the deal, GM will be able to retain the tooling it provided CCM to manufacture 175 parts for the automaker, and purchase any finished product in its inventory. The bankruptcy court judge who approved the agreement ruled that CCM’s contract with GM is now terminated, allowing the Massachusetts-based company to sell off remaining assets, including its dedicated machinery.
According to the WSJ, GM looks ready to oppose the sell-off of that machinery.
The 115-year-old CCM filed for Chapter 11 bankruptcy protection last week and laid off its workforce, a move that would have crippled the automaker’s North American assembly operations. Any break in the supply chain would amount to huge financial losses for GM.
GM immediately filed an objection in bankruptcy court to stop the pending sell-off of tooling and machinery. In the filing, the automaker revealed it had funded the company’s operations since mid-March, when CCM defaulted on a $1.5 million loan. CCM’s attempt to shut down its operations on June 17 led the automaker to seek a temporary restraining order, which kept the parts flowing.
Now that GM has access to its own tooling, the question is: who will produce these parts, using their own machinery, to keep vehicle assembly lines from going silent? The automaker’s use of in-time production methods means it doesn’t have a warehouse full of parts to source from, and timing is critical.
The automaker claims other companies can take over production of the parts. A GM spokesperson quoted in Fortune said the company had identified several unnamed suppliers who could do it, adding that the agreement with CCM “mitigated” any supply chain disruption.
I am sure one of GM other suppliers could open up next door hire a ton of the old workers back and be up and running pretty soon, I hope the workers get their jobs back, tough time to be out of work in that sector.
It would be great if this is what happens, but some douches at GM need to loose a few perks for letting this happen in a JIT production.
A tooling takeover by a new mythical supplier isn’t as seamless as one would think. The mold/tooling parameters might suddenly be ‘forgotten’, as well as other tribal knowledge about the process.
In any case, GM is probably going to be paying more for these parts than they have been, unless the new supplier is able to control costs better without the pension liabilities of being a 115-year-old company.
See to Aux,
I am sure not a seamless transaction , but who has just one supplier ?? Unless GM can force one of the other suppliers to buy this one out of Chap 11 there will be some pain involved no doubt, but not sure what better options they have, good point on the pension part I assume we the tax payers know cover that.
Exactly. CCM is in Massachusetts. The Venn diagram of existing suppliers, location near the laid-off workers, capacity and willingness to assume the work is, likely, a set of non-overlapping circles.
Why didn’t GM just buy out CCM, and take it over? There are other suppliers that can do this kind of work, like Johnson Controls or Magna. The problem is packing and moving the tools, getting industrial engineers to map out an assembly line, millwrights to move and set up the tools, etc. Not a finger-snap process.
This is why it would be easier to take over the plant and rehire the employees, at least until they can plan a more orderly transition.
I’d not sell it to GM, just to spite them.
Well, once you hit bankruptcy, the judge might not take kindly to “spite” as a reason not to accept a buyout offer.
The problem with buying CCM outright is that you’d take on a pension fund that is paying people who haven’t worked there since the 70’s. And I can tell you that taking on the pension obligations of a company who isn’t doing so hot is really, REALLY toxic.
The other side is that since the Delphi spinoff (and subsequent cratering/dumpster fire) GM (Old and New) has avoided being their own supplier. It’s WAY easier to manage the organization if you aren’t trying to be your own supplier. JIT pretty much requires you to focus on the assembly, and to plan your vendors accordingly.
*crosses fingers* I hope it isn’t my company that ends up with making these parts.
Hell, there was never any doubt. All GM wants is the tooling. They can hire a contractor to run production and supply the worker bees.
Too much ado about nuttin’.
Incorrect. GM has no desire to be in the component manufacturing business.
And they have to keep all of their assembly lines running, so this is not too much ado about nothing. Their losses per every hour of lost production are in the six figures if not seven.
One of my co-op jobs at a GM parts supplier during college was in the Purchasing Followup Department. We were the group ultimately responsible for making sure that the assembly lines had all of their necessary parts (our products were used in every GM assembly plant). Very high stress. Nothing was off the table to keep the lines running. If you had to charter a private plane to get Packard wire harnesses from Warren, OH to Kokomo, IN, that afternoon, you did it.
redmondjp, my “Too much ado about nuttin’” statement was in reference to all the faux-fears yesterday about GM having to halt production.
It was my contention that they would resolve this matter by hook, or by crook. And they did.
Your last paragraph was most interesting in that it served to confirm for me what I had long suspected – that there is nothing that an automaker will not do to ensure continued production.
I’d love to stay on and chat, but we’re packing to go to Germany for an extended stay.
Happy summer to everyone.
redmondjp Did you go to GMI?
CCM could negotiate loans to keep afloat, but couldn’t negotiate a better price for their parts? Something smells.