DETROIT (Sept. 25, 2009) — General Motors Co. will begin paying its suppliers weekly instead of monthly, in an attempt to improve relationships and limit large outflows of cash.
The plan benefits both GM and its suppliers by reducing cash volatility, spokesman Dan Flores said. Suppliers will not run as low on cash if they receive weekly payments, and GM will not drain its cash reserves as much when it sends a payment.
“We're not going to save money by doing this,” Flores said. “But it's a better, more reasonable, smarter way to run the business.”
GM told the suppliers about the plan during a conference call today, after first seeking the input of its supplier council. The weekly payments, scheduled for Tuesdays, will start Dec. 22, Flores said.
The change affects all auto parts and logistics suppliers to GM's North American plants, and the auto maker plans to expand the program globally, he said.
GM executives had discussed such a change in payments about two years ago for similar reasons but elected to keep the monthly schedule.
But during GM's government-sponsored bankruptcy, which ended July 10, executives were struck by how much cash reserves changed each time they paid suppliers.
“We obviously were micromanaging our cash — down to the penny, down to the minute — because that was our lifeblood,” Flores said.
GM has paid suppliers monthly for years — an average of 47 days after the auto maker receives their products. That 47-day lag will continue, Flores said.
Under the transition plan, GM's 1,400 auto parts suppliers and 300 logistics suppliers will receive their last monthly payments Dec. 1. That will cover all the parts supplied through the end of October. The first weekly payment will come Dec. 22 for parts supplied in November.
Robert Sherefkin contributed to this report