Government Conditions Roil GM and Chrysler Supplier Relationship

Automotive News reports that as part of a $5 billion in aid from the Federal government to GM and Chrysler to help pay their suppliers a provision makes it possible for the companies to dump those parts manufacturers who have “sought faster payment” or “argued that the law allows them to break contracts”. Several of the bigger parts companies have been demanding that the automakers pay quicker then the standard 45 days due to concerns that they may soon be bankrupt. They have also begun to assert under the Uniform Commercial Code that they may break contracts with the companies if they file bankruptcy. The part of the Federal aid to the automakers for parts allow companies to pay either two or three percent of the money owed them and the Federal government will either guarantee the owed funds or payment in full rather then waiting for the auto company to pay them. If the company, though, has asked for faster payment or tried to assert the right to break the contract then they cannot get access to the fund. Many parts companies have seen significant revenue drops due to cutbacks in production by GM and Chrysler and the fund would have helped them recoup money owed. The fund is not large enough to cover all possible debts so the two will get to choose who can participate. This means that they will probably favor those companies who have worked with them over the last year. This is another example of how receipt of government funds can disrupt the normal business process.