GM presses suppliers for future recall costs
August 5, 2013
General Motors has adopted a new purchasing contract that would allow it to recover from suppliers the cost of safety recalls -- even if a component met GM specifications, says a lawyer for suppliers.
The new contract framework also demands unprecedented access to a supplier's financial information.
Under the new contract, which GM began to implement July 15, suppliers can be held responsible if GM later determines that a component the supplier built to GM specs poses a safety risk to consumers, said Sheldon Klein, a lawyer for Butzel Long, which analyzes contracts for the Original Equipment Suppliers Association.
This language creates a "potentially catastrophic" financial liability for suppliers, Klein asserts. "As a practical matter, it's not insurable," he said.
The potential cost of such after-the-fact design-related safety determinations was highlighted this year when Chrysler Group agreed to install trailer hitches on as many as 1.56 million 1993-98 Jeep Grand Cherokees and 2002-07 Libertys. The hitches are intended to protect vehicles' fuel tanks, even though the Jeeps met federal safety specs when they were built.
Chrysler estimates the hitch fix will cost $151 million. The recall was requested in June by the National Highway Traffic Safety Administration, which concluded the vehicles' fuel tanks, positioned behind the rear axle, were unsafe.
NHTSA Administrator David Strickland told Automotive News afterward that to avoid recalls, automakers must stay "within the zone of reasonable risk," not only meeting federal safety standards but also keeping up with the state of the art in design and technology among competitors.
Asked whether GM suppliers might be held at least partially responsible in similar recalls involving parts, Klein responded: "It fits the scenario to a T."
The new GM contract has open-ended implications, stating that the supplier's components "will not, at any time (including after expiration or termination of this contract), pose an unreasonable risk to consumer or vehicle safety."
Warranty costs have been a traditional source of tension between suppliers and automakers, which have sought to expand suppliers' liability.
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