Yorozu Corp. executives regret the day the company began doing business with General Motors in 1990.
The Japanese supplier of stamped steel parts for several GM models has filed a lawsuit against the automaker, asking the courts to void its contracts with the U.S. giant.
Its reason: Yorozu can't stand GM's business practices anymore.
Yorozu may be only one supplier, but it has an exclusive contract to supply stamped metal parts that are crucial to the production of the Chevrolet Malibu and Colorado, Pontiac G6 and other nameplates.
Judging from Yorozu's court documents, it has grown weary of GM's way of doing business.
"In light of GM's unilateral actions to reduce retroactively the price of components produced and to be produced for GM, which amounts to breach of contract, Yorozu has no alternative but to cease doing business with GM," wrote Kazumi Sato, president of Yorozu America Corp., to GM's North American purchasing operations.
The letter, included in the court file, went out last September after GM informed the supplier that it was changing 80 aspects of Yorozu's contract to reduce parts prices.
Yorozu moved its North American executive offices to the Detroit area in 2000 in hopes of establishing closer relations with GM. But last year, the company moved them back to McMinnville, Tenn.
Keep it
A GM spokesman said the company cannot comment on pending litigation. GM has filed a countersuit against Yorozu in Michigan, accusing the supplier of overcharging GM for parts. GM's countersuit claims that the automaker began reducing its payments to Yorozu simply to correct the overcharges.
Both sides acknowledge that GM subsequently tried to refund the money it had docked the supplier. But Yorozu has refused to accept the money, dismissing GM's interpretations of events and asking to be relieved of its obligations.
North American suppliers have grumbled for years about GM's supplier relations and aggressive price-slashing methods. But in an era when U.S. automakers and their U.S.-based suppliers have faced tough conditions, few have been willing or able to risk evoking GM's wrath or losing its business.
Yorozu says it is willing to lose it. The company has a buffer: Its two larger U.S. customers, Nissan North America Inc. and Honda of America Manufacturing Inc., both have growing U.S. supplier capacity needs.
For now, Yorozu continues to ship GM parts.
And the supplier is hardly the automaker's biggest headache. But Yorozu - a minor player in the North American automotive scene, with expected 2006 sales of $440 million- has squared off for a fight that could set precedents.
For one thing, Yorozu is GM's sole source for a stream of stamped chassis parts worth about $120 million a year.
A break in the relationship would leave GM scrambling for a quick replacement supplier in an uninviting field.
Yorozu has become one of the largest stampers of steel chassis parts in the U.S. market. Its only larger competitor in that segment, Tower Automotive Inc., is operating under Chapter 11 bankruptcy protection.
Documents filed in the lawsuit indicate that, because of the price reductions, Yorozu is now losing money on some GM business.
At the same time, Yorozu's lawsuit threatens to set a precedent that could make things uncomfortable for GM as it sorts out its own financial woes.
Credit demand
Yorozu has demanded that if GM wishes to continue receiving stampings, GM must post a $75 million letter of credit as an assurance of performance. Yorozu told GM it is asking for the letter under terms of the Uniform Commercial Code, the general set of laws governing business transactions.
Yorozu justifies its demand by asserting that GM is no longer a financially sound customer, based on its recent filings with the U.S. Securities and Exchange Commission. GM lost more than $10 billion in 2005 and an additional $323 million in the first quarter of this year.
GM has refused to provide the letter of credit, according to the lawsuit, filed in the Circuit Court of Warren County, Tenn.
In a March 21 letter addressed to GM's global purchasing operations, David Kerstetter, Yorozu's director of corporate sales and purchasing, wrote that if GM does not provide the assurance, Yorozu will have "no alternative but to cease immediately production and shipment of all products to GM."
"While we wish to work with GM and help it overcome its current financial difficulties," Kerstetter wrote, "Yorozu must protect itself from the probability of further default by GM."
You may e-mail Lindsay Chappell at [email protected]
