DETROIT -- At a time of extraordinary industry distress, North American automakers are using an obscure legal weapon -- dubbed the "nuclear option" by suppliers -- to keep assembly lines running.
This weapon is called a "right of access" agreement. It's a legal tool that gives automakers the right to seize a faltering supplier's factory if the flow of parts to the assembly plant might be disrupted.
General Motors' lawyers created this agreement in the 1980s; other automakers, such as Ford, Chrysler and Nissan, have adopted the practice, too. And now some big suppliers, such as Visteon Corp., Lear Corp., Delphi Corp. and Tower Automotive Inc., are starting to demand right-of-access agreements from their vendors.
Industry experts say as many as 300 right-of-access agreements exist. For example, General Motors has negotiated about 20 deals, twice as many as it had two years ago.
Lear President Doug DelGrosso says his company has negotiated about a dozen agreements with suppliers. Lear's right-of-access agreements are similar to those of its customers, DelGrosso says. "We mirror our customers' conditions on our suppliers," he said.
These agreements are so draconian that they are rarely invoked - just six times in the past 15 years, industry insiders say. That's because their mere existence is enough to convince a supplier not to disrupt an automaker's production.
The growing use of such agreements underscores the financial stress faced by a burgeoning percentage of the North American supply chain. No vendor would sign such an agreement unless it absolutely had to. But signing such an agreement still could bring financial stability and avoid a bankruptcy.
Says restructuring expert Kenneth Dalto of Kenneth J. Dalto Associates in suburban Detroit: "The untold story of these agreements is that they have stabilized the otherwise shaky financial structure among smaller suppliers."