It's time to halt the auto industry's practice of demanding rebates from suppliers.
Last week, General Motors announced it would restate 2001 earnings because it had improperly booked rebates paid by suppliers.
Rebates are cash payments made by a supplier in return for a contract to produce parts for a customer. Rebates are supposed to be the supplier's down payment on future cost-cutting efforts.
In theory, those cost-cutting efforts will allow the supplier to reduce prices; the rebate is supposed to reflect those future price cuts. Rebates are not unique to the auto industry. Kmart, for example, has received rebates from its suppliers.
And Delphi Corp. collected rebates from its vendors, too.
Suppliers hate rebates because they are predicated on future production efficiencies that might not materialize. And they hate rebates because they can trigger cash-flow crises.
Even if General Motors books rebates to the Securities and Exchange Commission's satisfaction, this practice clearly has outlived its usefulness.