Speed key as GM, suppliers align on ventilators

President Donald Trump invoked the Defense Production Act last month to force General Motors to speed up its production of ventilators, an action that has rippled through the auto supply chain as suppliers fire up the front line and transition their manufacturing processes to provide components critical to fighting the coronavirus pandemic.

Many auto manufacturers are already producing personal protective equipment such as masks and gloves. But GM — now as a supplier to the federal government with a formal contract totaling $489.4 million — must satisfy the requirements imposed by the government under the act. That includes supplying 30,000 ventilators to the Strategic National Stockpile by the end of August and delivering more than 6,100 ventilators by June 1.

"Speed is paramount, as there is a critical, immediate need for additional personal protective equipment of all kinds, including ventilators, in major hot spots," said Ann Marie Uetz, a partner at Detroit-based law firm Foley & Lardner, who represents suppliers in the auto and defense industries.

Uetz, 52, also is the head of Foley's coronavirus task force and a member of the firm's automotive industry team. She spoke with Staff Reporter Audrey LaForest about the Defense Production Act and its role in the auto sector's response to the COVID-19 crisis. Here are edited excerpts.

Q: With the president invoking the act, GM is forced to give this priority over other orders. What's next for suppliers?

A: As a practical manner, the negotiations between GM and its suppliers had already been underway even before the president invoked the act. Maybe some suppliers have greater comfort now that GM has finalized its contract with the federal government in the sense that they know that those terms are set, so their terms with GM can be set. We've got a number of manufacturing clients, for example, who are in that chain, who are already finalizing purchase orders with GM and ordering goods and materials, and supporting the transition of assembly lines over to support the production of the ventilators.

How has the act affected production efforts?

Maybe it sped things up a bit.

GM, by all accounts, was very committed to getting this production off the ground as soon as practically possible, and it takes time and effort to switch over assembly lines and to get the tooling ready to create the parts, to get the contracts in place with essential suppliers — many of whom have been idled by emergency orders set in place in their local jurisdictions. It just takes time to get the machine up and running again, but from our perspective and talking with automotive suppliers who are very involved in the effort, everybody's rowing in the same direction.

GM has said it is donating its resources at cost. Financially, how does this pan out?

Are suppliers going to lose money on this effort? I doubt it. I don't think they're going to get rich on this effort, either. GM is formidable when it comes to negotiating purchase orders and pricing.

From our perspective — representing so many suppliers involved in the effort and in the industry — they do truly seem aligned for the joint purpose of getting these ventilators out the door and in the hands of the medical professionals who need them.

GM is not going to build these for free, obviously. It will be paid for the production, but no one is going to make their margins on it, either. GM is going to negotiate with the suppliers for the pricing on this, and I think it will just flow down from its contract with the federal government.

Last month, GM confirmed its plans to build ventilators with Ventec Life Systems. Did the act change anything?

The process was underway, and the process continues. It's possible that the process was sped up by the president invoking the DPA. We see some evidence of that in the fact that GM and the federal government have reportedly reached terms on the final contract. But apart from that, GM was taking steps full steam ahead to finalize its plans for this production, and that has just continued.

Most of us in the industry have not observed any kind of sea change owing to the president invoking the DPA. But maybe it sped up the process a bit and maybe it put other companies on notice that they, too, should speed this up.

What is at stake here?

GM is usually in the driver's seat — pun intended. It's the big customer in the room, and it enjoys that position when it's dealing with its own manufacturing and getting its own supply chain in line to build cars for it.

This is a different dynamic because GM is not the customer. The federal government is the customer, and there probably isn't a bigger customer in the world than the federal government. It does change the dynamic of GM in terms of it being able to operate autonomously and make whatever decisions it wants to make.

It's still autonomous, and it's making its own decisions, but it's doing so against the backdrop of a contract with the federal government that has to be timely fulfilled. I do think that the supply chain operates really efficiently. And like I said, I think that the automotive suppliers and GM are very aligned on their stated goal of getting these ventilators out to market. From that perspective, I would be surprised to see real issues pop up between GM and its customer. This is an unusual circumstance where everybody seems fairly aligned on the end goal.