October 11, 200817 yr Amy Wilson Automotive News October 11, 2008 - 12:01 am ET DETROIT -- In a bid to conserve cash, General Motors is giving itself more time to pay its North American non-production suppliers. Effective Oct. 1, GM says it is paying its "indirect" suppliers 60 days after receiving goods or a valid invoice, GM spokeswoman Deborah Silverman said yesterday. The company previously paid those vendors on a "second day, second month" basis or within about 35 days, she said. Despite the longer terms, payments will be made more frequently -- on a weekly basis, rather than once a month. GM has about 10,000 indirect suppliers in North America. They provide services and non-production materials such as paper products. About $22 billion of GM's $94 billion annual global purchasing budget is spent on indirect suppliers. Suppliers were sent a Sept. 26 letter telling them of the changes. A report about the policy change and a copy of that letter was posted Thursday on the Web site, www.thetruthaboutcars.com. Silverman said there is no plan to lengthen the payment terms for GM's direct suppliers, the companies that make parts for vehicle assembly. "The dollar value (spent with direct suppliers) is a lot larger, so it makes it more complicated to do it," she said. GM has about 3,600 direct suppliers in North America. Many of those parts makers are struggling financially, too. Slower payments would hurt their own turnarounds, and those companies might be more likely to fight such a policy change. The new payment terms will help GM stretch out its cash, a key priority for the financially strapped automaker as vehicle sales collapse. "Obviously, I think it's being done to conserve cash," said Erich Merkle, an analyst with Crowe Horwath in Grand Rapids, Mich. GM lost $15.5 billion in the second quarter. It is burning through about $1 billion in cash every month. At the end of June, GM had $21.0 billion on hand. Running out of money in the next year is a real risk for GM, many analysts are saying. On Thursday, Standard & Poor's put GM's credit rating on review for a downgrade, saying it could cut it further into junk territory. On Friday, Barclays Capital analyst Brian Johnson said GM needs to raise $10.3 billion of cash through 2009 to maintain adequate liquidity. The slowdown in auto sales overseas further threatens GM's turnaround, Merkle said. "The markets they had depended on for profits to offset the weakness in the United States, they're just not going to be able to depend on," he said. Link: http://www.autonews.com/article/20081011/A...paign_id=alerts
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