GM Manages Supply Risk with a Major Strategy Shift

By ASCM CEO Abe Eshkenazi, CSCP, CPA, CAE

As the Iran war drags on, companies must grapple with sluggish movement through the Strait of Hormuz, high fuel costs and eroding global security. In combination with punishing tariffs, the current marketplace is compelling many supply chain organizations to drastically overhaul their supply chain risk strategies.  

Hyundai, Kia, Toyota, and many others have experienced significant parts shortages recently, due to conflict in Iran and Ukraine, as well as lingering effects of the pandemic. In April, “Rising raw-material costs, shortages of aluminum, resins and other basic supplies” led Toyota to significantly downgrade its projected profits and predict that “production will fall by about 200,000 vehicles,” per Bloomberg. The intervening months have not lessened automakers’ worries.  

For General Motors, the shortages have become so critical that the company has now established a $4.5 billion safety net designed to keep critical components flowing, reports The Wall Street Journal. This decision, intended to help GM manage slowdowns and stoppages caused by extenuating circumstances, “aims to give suppliers enough capital to maintain production and potentially stockpile parts. GM in turn can keep its assembly lines moving amid supply chain disruptions, without tying up large amounts of capital.”  

The move demonstrates the automaker’s determination to avoid a repeat of past struggles, including a post-pandemic semiconductor shortage that cost billions after the company was “forced to sporadically idle assembly plants across North America,” the Journal continues.  

This marks a significant change in risk strategy: Instead of waiting for specific orders of critical components, GM is pre-funding their purchase in partnership with management firm Procura, as well as a banking syndicate led by JPMorgan Chase and Banco Santander. Importantly, all partners are bound to the contingency plan. “GM will pay interest and an agreed-upon premium on parts bought through this arrangement, as well as pay an annual fee on any unused facility portion. For accounting purposes, the automaker will record the prepayments as assets and treat each purchase as unsecured debt,” explains CBT News.  

For suppliers, this arrangement is as much a display of GM’s leverage as it is a lifeline. It requires them to hold dedicated safety stock exclusively for GM — restricting how they allocate capacity to other clients — or risk losing their contracts. Yet, in an increasingly volatile market, trading some operational control for guaranteed capital and steady demand is likely a smart financial move. 

The challenges of an evolving industry 

As global shocks force OEMs to rethink working capital and inventory strategies, supply chain leaders must adapt quickly to stay resilient. At ASCM’s CHAINge North America, you’ll hear from world-class speakers on issues of risk, supplier relationships and disruption — clearly all subjects of particular importance right now. From “The New Rules of Global Trade” to “Resilient by Design: Risk in the Modern Supply Chain,” the sessions, roundtables and workshops offer you and your team the insights required to build a competitive, future-ready supply chain. CHAINge takes place September 29-30 in Long Beach, so register today!