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GM to bypass Tier 1 and pay Tier 2 suppliers directly

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Ever heard the saying, "It takes a village to raise a child?" Something similar could be said about the automotive industry, except the village is an assorted and wide-ranging group of auto suppliers and the child is your next new car. Currently, the major automakers only deal directly with Tier 1 suppliers, the big companies that assemble major automotive components into large modules. These modules are created using parts from Tier 2, Tier 3 or even smaller suppliers, and these companies are generally paid by their larger Tier 1 siblings.

General Motors has just announced a new provision that would have the automaker making payments to smaller Tier 2 suppliers. The worry is that the horrid financial condition that many of the large Tier 1 suppliers find themselves in could force them into delaying payments to the smaller feeder companies, which could bankrupt the fledgling lower-tiered suppliers and eventually cause GM (along with its competitors) to run out of parts for production.

So far, GM is the only automaker to embark on such a program, but that could soon change if some of the largest troubled auto suppliers are forced to declare bankruptcy. On the other hand, the Obama administration just announced a $5 billion Supplier Support Program, which could ease some of the troubles.


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A fine mess you've gotten us in, Wall St.

No way man! This is all Detroit's fault for building cars that no one wants. The suppliers have been building parts that no one wants either.

(bleeding, seething sarcasm)

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