GM Follows Ford, Alters Supplier Contracts

As Ford Authority reported this past July, Ford has been forcing its suppliers to sign more stringent terms, and in exchange, they’ll receive new business and tariff cost relief. That move includes an attempt to roll back a decades-old provision that enables suppliers to opt out of their contracts each year, which has historically been used by those suppliers as leverage during negotiations. Now, Ford’s cross-town rival, General Motors (GM) is apparently following suit.

According to GM Authority, GM is adding what it calls a “Program Extensions Clause” to purchase orders, which basically gives the automaker the ability to set pricing adjustments and extend contracts indefinitely, with six months notice, at least. On top of that, if GM and one of its suppliers can’t reach an agreement on revised pricing, The General now has the ability to set its own “fair cost assessment” based on supporting documentation.

Previously, GM used fixed-term contracts with its suppliers that gave those companies a lot more predictability in regard to production planning, pricing negotiations, and the ability to manage costs amid ever-fluctuating materials fluctuations. Thus, as one might imagine, this move has received is fair share of criticism from the industry already, with some even going so far as to say that it could have serious financial repercussions on more than one automotive supplier. As a result, some attorneys are reportedly advising suppliers not to agree to these new terms.

To date, automotive suppliers have been adamant that they intend to pass down the costs of tariffs to consumers, as most operate on thin margins and could potentially go belly-up if they try to absorb those costs – which automakers like Ford are doing to a degree. As for The Blue Oval, its new terms sheets reportedly nix the aforementioned clause, and are being required for suppliers seeking new business.