GM rolls back contentious terms in purchasing contract

Mike Colias
AUTOMOTIVE NEWS

Published: February 11, 2014 8:52 am ET
Updated: February 11, 2014 8:54 am ET

Related to this story

Topics Automotive
Companies & Associations General Motors Co., Magna International Inc.

DETROIT — General Motors Co. is rolling back controversial changes it made last year to its purchasing contract, including new terms that some suppliers believed exposed them to greater warranty liability.

GM last July rolled out the biggest overhaul to its supplier contract framework in 20 years. Some suppliers and their attorneys interpreted the new terms and conditions as giving GM far broader authority to recover warranty and safety-recall costs, to take over suppliers' intellectual property rights and to access their financial information.

GM global purchasing chief Grace Lieblein told Automotive News on Feb. 10 that the contract changes "left a lot of room for interpretation," leading some suppliers to think the worst of GM's intentions.

"The language was getting interpreted differently from our business intent," Lieblein said.

Lieblein said she decided to strike the most controversial elements from the contract after months of hearing concerns from supplier CEOs and their attorneys. GM was scheduled to outline the changes during a conference call this morning with representatives from hundreds of suppliers.

"I don't want to be talking to CEOs about terms and conditions," Lieblein said. "I want to be talking to them about technology and quality and driving waste from the system to go after cost."

GM declined to provide a copy of the new contract to Automotive News. A GM spokesman outlined the main changes:

• Eliminating a sentence that said suppliers' parts will "not, at any time (including after expiration or termination of this Contract), pose an unreasonable risk to consumer or vehicle safety." Many suppliers and their attorneys interpreted that as creating an open-ended liability, beyond the usual warranty on supplier parts, which generally expires at the same time as GM's consumer product warranty.

• Clarifying that GM's "audit rights"— the automaker's right to access a supplier's books — are limited to business between GM and the supplier. The 2013 contract language had left the impression that GM wanted broad access to suppliers' income statements, balance sheets and other proprietary information. Some suppliers feared GM could use that information to demand price cuts.

• Deleting a provision that required suppliers to ensure uninterrupted supply during "any foreseeable or anticipated event," whereas the old contract applied only to labor disruptions. Some suppliers worried that this language would leave them responsible for flagging problems at an upstream supplier, for example.

• Clarifying a provision that grants GM license to a supplier's intellectual property only during limited periods when the supplier isn't able to ship products. Suppliers said that the terms enacted last summer posed a broader risk to their intellectual property rights.

GM revised the contract last year partly to conform with the terms and conditions used by PSA/Peugeot-Citroen, GM's partner in a joint-purchasing venture created in 2012. GM also thought the update was overdue because its contract not been revised in about 20 years.

The new terms and conditions applied only to new purchase contracts. A GM spokesman said that few, if any, suppliers chose not to do business with GM because of the concerns. But Lieblein said the feedback from supplier executives and attorneys made clear that they were uncomfortable with elements of the new contract.

"To stay with terms and conditions when we knew there was significant concern and a lot of variation and interpretation didn't feel consistent with the relationships that we're trying to build," she said.

Lieblein said the latest revisions were made with the help of GM's supplier council, a group of about a dozen CEOs and other executives from GM suppliers of various sizes.

Don Walker, CEO of Magna International Inc. of Aurora, Ontario, and a key member of the supplier council, said the changes GM initiated last year raised suspicions among some suppliers, even though GM executives insisted that there were no ulterior motives.

"There was a lot of feedback from some people who were concerned about what the legalese really meant. They thought, 'Is GM trying to pull a fast one?'" Walker told Automotive News. "I think the changes they've made get them to what their intent was in the first place. It does clarify things."

Julie Fream, CEO of the Original Equipment Suppliers Association, said the changes seem to address the major concerns expressed by the group's members.

"I think this demonstrates a willingness on GM's part to listen and respond to the supplier community," Fream said.

Lieblein acknowledged that GM erred last year when it revised the terms and conditions without input from suppliers and implemented them without notice.

"In hindsight, it was a misstep for sure," Lieblein said. She said GM ultimately decided to exclude the problematic conditions as a sign of trust in its suppliers.

"Our No. 1 cultural priority is nurturing strategic relationships with suppliers. That is the only way we will be successful," she said. "That has got to be based on trust."

She said the revised terms and conditions will take effect on new contracts as soon as suppliers have had time to review the changes and offer feedback.


Comments

GM rolls back contentious terms in purchasing contract

Mike Colias
AUTOMOTIVE NEWS

Published: February 11, 2014 8:52 am ET
Updated: February 11, 2014 8:54 am ET

Post Your Comments


Back to story


More stories

Image

New contract for JCI workers heads off potential strike in Ontario

August 25, 2014 3:17 pm ET

About 300 unionized workers at a Johnson Controls Inc. interiors plant in Ontario ratified a new three-year contract, heading off a potential strike...    More

Image

A123 Systems re-energizes its future

August 25, 2014 10:40 am ET

Battery maker A123 Systems LLC has new leadership and a new strategy expected to help the company generate just above a net zero cash flow on revenue ...    More

Image

Automakers look under the hood for the next lightweighting opportunities

August 20, 2014 1:06 pm ET

The automotive industry's current favorite target for lightweighting efforts is the powertrain, according to a recent survey.    More

Image

Cooper-Standard JV to focus on Asia

August 20, 2014 10:17 am ET

Cooper Standard Automotive Inc. is forming Cooper Standard Inoac Pte. Ltd. — a joint venture with Inoac Corp. of Japan — to expand the...    More

Image

Ohio molder sold to private equity firm

August 19, 2014 5:23 pm ET

Private equity firm TVV Capital of Nashville has acquired injection molder Design Molded Plastics Inc. for an undisclosed price.    More

Market Reports

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report analyzes economic and market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as growth strategies being implemented by thermoformed packaging companies.

Learn more

Pipe, Profile & Tubing Extrusion in North America 2014

U.S. demand for extruded plastics is expected to grow by 3 percent in 2014, with PVC remaining the largest segment.

Plastic pipe will post the strongest gains through 2018, continuing to take market share from competing materials in a range of markets.

Our latest market report provides in-depth analysis of current trends and their financial impact on the pipe, profile and tubing extrusion industry in North America.

Learn more

2014 Injection Molding Industry Report

GROWTH, OPPORTUNITY IN SIGHT FOR INJECTION MOLDERS IN 2014

In the wake of the economic turbulence earlier in this decade, molders today find themselves in much better shape. Molders are gaining a competitive advantage by investing in people, equipment and seeking inroads into new markets on a global scale.

Growth in the injection molding industry is going to be driven by low financing costs and a continued move to reshore some business.

Learn more

Upcoming Plastics News Events

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events