General Motors has told its suppliers that it can change to a cheaper supplier with just 30 days’ notice and without reimbursing tooling or other up-front investment costs, the Detroit Free Press reported.
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The paper said that GM previously would negotiate with a supplier to pay the company back some of its up-front spending if a contract was cancelled and would use only quality, delivery and service but not cost or price as a reason to cancel existing business during the first 18 months of a contract.
The paper said supplier executives and their lawyers blasted GM’s new terms, saying they radically change the way vehicle makers and suppliers do business.
GM spokeswoman Renee Rashid-Merem told the Detroit Free Press the new contract terms, which the company announced to its suppliers last month, are not a radical change.
“Now a supplier needs to be competitive during the term of the contract. It’s how we’ve been running the business for some time,” she reportedly said.
The newspaper said Rashid-Merem acknowledged a supplier could lose its GM contract and not get reimbursed for money spent preparing for the contract, saying: “Yes, that’s the case, but everyone will work in that parameter. Suppliers will have to manage that risk in their costs.”
The Detroit Free Press said that it appears that GM’s new supplier contract language differs from other vehicle makers’.
The paper cited a copy of a 2003 Ford supplier contract that it obtained which spells out that, if Ford pulls work from a supplier, it will pay “any outstanding balance owed to the supplier for . . . tooling.”
A supplier executive told the Detroit Free Press that DaimlerChrysler’s Chrysler Group negotiates and pays back some up-front costs to a supplier after a contract is pulled.
Rashid-Merem told the paper that GM still feels its new terms are “not significantly different than how our competitors run their business.”
