GM was wise to rework pacts with suppliers
Seven months after imposing sweeping new terms and conditions on its supply base, General Motors has backed away from several provisions that ticked off suppliers. It was a wise decision that acknowledged the growing power of parts manufacturers.
GM said it was clarifying language that could be misinterpreted. For example, it was eliminating terms that some suppliers interpreted as creating an open-ended liability for recalled parts and was deleting a provision that demanded broader guarantees against supply interruptions.
GM also limited its rights on two counts: It can inspect a supplier's financial dealings only with GM and can share a supplier's intellectual property with others only during a period when the supplier can't deliver parts.
GM modified the terms with input from its supplier council and admitted it had been wrong to change the rules without consulting its suppliers first.
GM was wrong. In an era of intense global competition and soaring product-development costs, automakers need the trust and good will of the suppliers that control key technologies. That's especially true for GM, which is still trying to shake a reputation for hard-nosed negotiations with suppliers. The decision to modify the purchasing rules was encouraging.
Since emerging from its 2009 bankruptcy, GM improved its relations with suppliers under purchasing boss Bob Socia. Socia's successor, Grace Lieblein, said she wants to build on that. Last week, she said wrangling over terms got in the way of "the relationships that we're trying to build."
Generally, the base purchasing contracts had been ripe for an update last year. GM said it had reworked the terms and conditions to align with those of PSA Peugeot Citroen, GM's partner in a global purchasing alliance formed in 2012, and because they hadn't been updated in about 20 years.
The status of suppliers has changed dramatically in that time. Parts makers are no longer replaceable cogs that fabricate components developed and designed by each automaker.
Under cost-cutting pressure, the supplier sector consolidated and gradually took on greater responsibility for developing new technologies and systems, sometimes even subassemblies. Manufacturers no longer have the resources to design and develop complete vehicles independently.
Today's automakers need suppliers that can provide advanced technology and deliver it globally. The relatively few technology-savvy suppliers large enough to meet those requirements have the power to funnel their latest innovations to their best clients, an effective check on onerous terms.
GM's change in purchasing terms should help it resume building trust with its partners. That's necessary because each party needs the other more than ever.