GM alters language in purchasing contract

By Mike Colias, Crain News Service

DETROIT (Feb. 14, 2013) — General Motors Co. is rolling back controversial changes it made last year to its purchasing contract, including new terms that some suppliers believed exposed them to greater warranty liability.

Last July, GM rolled out the biggest overhaul to its supplier contract framework in 20 years. Some suppliers and their attorneys interpreted the new terms and conditions as giving GM far broader authority to recover warranty and safety-recall costs, to take over suppliers' intellectual property rights and to access their financial information.

GM global purchasing chief Grace Lieblein told Automotive News recently that the contract changes “left a lot of room for interpretation,” leading some suppliers to think the worst of GM's intentions.

“The language was getting interpreted differently from our business intent,” Ms. Lieblein said.

Ms. Lieblein said she decided to strike the most controversial elements from the contract after months of hearing concerns from supplier CEOs and their attorneys.

“I don't want to be talking to CEOs about terms and conditions,” she said. “I want to be talking to them about technology and quality and driving waste from the system to go after cost.”

GM declined to provide a copy of the new contract to Automotive News. However, a GM spokesman outlined the main changes:

• Eliminating a sentence that said suppliers' parts will “not, at any time (including after expiration or termination of this contract), pose an unreasonable risk to consumer or vehicle safety.” Many suppliers and their attorneys interpreted that as creating an open-ended liability, beyond the usual warranty on supplier parts, which generally expires at the same time as GM's consumer product warranty.

• Clarifying that GM's “audit rights”—the auto maker's right to access a supplier's books—are limited to business between GM and the supplier. The 2013 contract language had left the impression that GM wanted broad access to suppliers' income statements, balance sheets and other proprietary information. Some suppliers feared GM could use that information to demand price cuts.

• Deleting a provision that required suppliers to ensure uninterrupted supply during “any foreseeable or anticipated event” whereas the old contract applied only to labor disruptions. Some suppliers worried that this language would leave them responsible for flagging problems at an upstream supplier, for example.

• Clarifying a provision that grants GM license to a supplier's intellectual property only during limited periods when the supplier isn't able to ship products. Suppliers said that the terms enacted last summer posed a broader risk to their intellectual property rights.

The vehicle maker revised the contract last year partly to conform with the terms and conditions used by PSA/Peugeot-Citroen, GM's partner in a joint-purchasing venture created in 2012. GM also thought the update was overdue because its contract had not been revised in about 20 years.

The new terms and conditions applied only to new purchase contracts. A GM spokesman said few, if any, suppliers chose not to do business with GM because of the concerns. But Ms. Lieblein said the feedback from supplier executives and attorneys made clear that they were uncomfortable with elements of the new contract.

“To stay with terms and conditions when we knew there was significant concern and a lot of variation and interpretation didn't feel consistent with the relationships the we're trying to build,” she said.

Ms. Lieblein said the latest revisions were made with the help of GM's supplier council, a group of about a dozen CEOs and other executives from GM suppliers of various sizes.

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This report appeared on autonews.com, the website of Automotive News, a Detroit-based sister publication of Tire Business.