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.

[Source: Automotive News - Sub. Req.]

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