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OM in the News: GM Turns to Long-Term Supplier Contracts

April 25, 2015
An auto worker assembles an SUV chassis at the Arlington, Texas, GM plant

An auto worker assembles an SUV chassis at the Arlington, Texas, GM plant

General Motors’ purchasing chief said the nation’s largest auto maker aims to sign new parts contracts for two vehicle generations, or as long as a decade, to cut costs and gain access to advanced technologies. GM is gearing up for big investments in luxury cars, electric vehicles and other projects, and expects to sign hundreds of billions of dollars in new supply contracts over the next 2 years. By locking suppliers into longer-term contracts and looping into vehicle designs earlier in the process, the auto maker expects suppliers to share more innovations and better processes that help save money. “We want them to double down on us,” the purchasing head stated.

Recently, GM asked about 30 of the auto maker’s biggest parts makers to help relieve supply bottlenecks so the company can crank up production of its highly profitable pickup trucks and sport-utility vehicles. In some cases, GM promised to help suppliers cover additional costs to get the needed parts.

The change is part of a technology arms race in the industry, with auto makers vying to be first with self-driving features for vehicles or propulsion technologies that reduce emissions,” writes The Wall Street Journal (April 15, 2015). GM’s CEO recently implemented a strategy aimed at improving relationships with suppliers; she believed that the auto maker was overly optimistic in its planning assumptions or too forceful in its cost-cutting mandates. The firm is attempting to undo decades of damage caused by poor relationships with suppliers that had curtailed its early access to new innovations.

Classroom discussion questions:

1. Describe GM’s prior relations with suppliers.

2. Why the change?

3. Research the history of the famous GM VP-Purchasing, Jose Lopez. (See Supply Chain Digest (July 7, 2009)

2 Comments leave one →
  1. Andrew Cochrane permalink
    April 27, 2015 2:49 pm

    Dear Barry,

    Thank you for your column. It is often interesting.

    The accompanying photo with this article is worrying and amusing . Perhaps it is not current, but historical.
    At a time when I suspect that many other auto manufacturers have fully automated / robotic production lines, does General Motors still work in this way ??
    No wonder they have had so much trouble over the last decade – producing the wrong models, financial disaster requiring massive government bail-out, poor relations with suppliers.

    Andrew Cochrane

    Melbourne, Australia

    • April 27, 2015 4:07 pm

      Thanks for writing, Andrew. Yes, indeed, GM has had a troubled history–especially with its suppliers. This is a big change. Let’s see if it works!

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