To General Motors, it is an insurance policy. To some suppliers, it is GM's nuclear option, a potent weapon that is rarely invoked.
The weapon is a so-called right-of-access agreement, a legal document that gives GM the right to take over a supplier's factory temporarily.
In the mid-1980s, GM developed the concept to deal with suppliers whose failures - through bankruptcy, incompetence or plain bad luck - threaten to shut down a GM assembly plant.
In recent years, Ford Motor Co. and Chrysler Corp. have signed several such agreements with suppliers in conjunction with GM.
One supplier that GM took over was Tube Products Corp., which signed its agreement in 1995. Tube Products was a special case because GM took over the supplier's plant in Franklin, Ohio, without formally invoking a right-of-access agreement.
Such takeovers - formal or informal - are rare.
'We view it as an insurance policy if all else fails,' said Don Baty, an attorney for Honigman Miller Schwartz and Cohn, the Detroit law firm that helped GM devise the concept. 'This has evolved over 10 years. GM was trying to solve a problem: How do we protect ourselves when a supplier can't perform?'
100 GM SUPPLIERS SIGN
According to Baty, the document is part of a tradeoff: In return for financial assistance, GM asks the supplier to sign the agreement. During the past decade, more than 100 GM suppliers have signed right-of-access agreements, including 15 in 1997.
Only twice has GM formally taken over a facility. In 1992, GM sent consultants to run Van Dresser Corp. - a Westland, Mich., maker of headliners - for six months until Textron Inc. bought the company.
In 1995, the consulting firm BBK Ltd. took control of Composite Energy Management System Inc., a bumper manufacturer in Grand Rapids, Mich. BBK, of Southfield, Mich., managed the supplier on GM's behalf for 14 months.
In a recent case, GM and Chrysler signed an agreement as part of a joint effort to stabilize a supplier that filed for Chapter 11 bankruptcy protection last October. The manufacturer - Chivas Products Ltd. of Sterling Heights, Mich. - makes plastic trim and lighting components.
The two automakers took action after Chivas fell short of quality goals and began to miss shipment deadlines.
GM LEADS THE WAY
Last November, GM and Chrysler - which account for 90 percent of Chivas sales - agreed to lend the supplier up to $3 million. In return, the two automakers required Chivas to sign a right-of-access agreement.
It wasn't enough to save the company. The automakers never carried out a takeover under the agreement, but they did pressure Chivas to auction its assets.
Chrysler has signed about a dozen right-of-access agreements, and Ford Motor Co. has signed several. In all cases, Ford and Chrysler did so in conjunction with GM. Neither Ford nor Chrysler used the agreement to take over a supplier's plant, according to attorneys for both companies.
GM and Chrysler did not take over Chivas' plants. They signed the agreement to protect their interests when Chivas got in trouble.
'The Big 3 attempt to work with each other in these situations,' said James Plemmons, an attorney with Dickinson, Wright, Moon, Van Dusen & Freeman, a Detroit law firm that represents Chrysler.
'There are more suppliers in trouble than the public knows about. The concept frightens the supplier, so you have to make them feel comfortable,' Plemmons said.
How do suppliers feel about it? Obviously, no vendor willingly gives a customer the right to take over its factories for six to 12 months - even if that right is never exercised. But under extreme circumstances, a supplier often needs the automaker's help.
'It's not a happy thing to enter into,' said Everett Telljohann, former CFO and one of seven former owners of Tube Products. 'But we didn't have the resources to do what needed to be done. When you get into that situation, you don't have many choices.'