GM Might Have To Halt US Car Deliveries Because Of A Bankruptcy

Bankruptcy

This could be a disaster for America’s largest automaker.

A bankruptcy filing may spell disaster for GM, but this time at least it isn’t GM that’s doing the filing. Instead, it’s GM’s parts supplier Clark-Cutler-McDermott Co, which filed for Chapter 11 after GM filed a motion to acquire CCM’s assets, including its production of car parts. CCM wants to reject contracts with GM and sell off assets on its own, which could be a disaster for the General. The firm sells various components to GM factories, including dash insulators, wheelhouse liners, floor insulators, and fender and pillar insulators.

Without these parts, GM will have a hard time getting the necessary components to build cars and fulfill customer orders. A GM lawyer highlighted just how dire the situation could be. “GM’s damages that would result from such a shutdown would be in the millions of dollars per plant per day.” Accounting for loss of customer relations and goodwill with delays in replacement parts and vehicle delivery, the lawyer followed up by saying, “In sum, these damages are at present incalculable, but clearly likely to be immense, and would leave GM with a claim against the debtors for rejection damages in such an extraordinary amount that there would be a massive dilution in the potential recoveries for the debtors’ unsecured creditors.”

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To mitigate the damage, GM filed for relief from the Bankruptcy Court District of Massachusetts, which if awarded would allow the automaker to take control of the equipment, tooling, and the finished inventory. Making matters worse is the fact that GM has a just-in-time delivery partnership with CCM, meaning that the supplier ships the parts to GM immediately before they are installed into cars and does not keep a stockpile of extras. The death of CCM means the end of a 45-year-old partnership between the two companies. GM checks made up 80% of CCM’s revenue, but when it defaulted on a loan things went downhill. GM tried to save CCM by loaning it money, but negotiations dissolved and the situation eroded to the point we're at today.

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