UPDATED: 2/11/14 3:35 pm ET - Details added
DETROIT -- General Motors 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 in 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 Monday 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 outlined 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 had 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.
Dan Sharkey, a partner at Brooks Wilkins Sharkey & Turco law firm in suburban Detroit, said the changes put GM's terms and conditions "pretty much inline with most other OEMs."
Despite improved relations with its supply base, GM is still living down its bare-knuckled reputation as a hard liner on pricing and costs.
Lieblein, who became global purchasing chief in early 2013, acknowledged "trust issues" from GM's past probably didn't help it earn suppliers' benefit of the doubt on the contract changes.
But she said her goal is to build on the progress that was made under her predecessor, Bob Socia, who led purchasing from 2009 to late 2012.
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.
The GM spokesman said the company does not disclose its annual purchasing budget. In a 2011 presentation to analysts, Socia pegged GM's total annual spending on the direct purchase of materials at $77 billion.
Don Walker, CEO of Magna International 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."
Rob Fisher, president of TK Holdings Inc., the North American subsidiary of airbag and electronics maker Takata Corp. of Japan, said automakers and suppliers almost never turn to the contract's terms and conditions to settle disputes. But he said it's understandable that the new language rattled some suppliers.
"At the end of the day, they exist to protect both companies," said Fisher, who also is on GM's supplier council. "I don't think there was any ill will on GM's part with the original changes. But the council's message was: 'The way these are written just can't fly."
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.
GM has shown steady improvement in its relations with suppliers over the past decade, according to a closely watched annual survey by suburban Detroit research firm Planning Perspectives Inc.
'It was a misstep'
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.
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