Parts Supplier Bankruptcy Could Halt GM's North American Operations

General Motors is facing the possibility of having to shut down all of its North American vehicle assembly operations because a parts supplier has declared bankruptcy and laid off its workforce.

According to The Detroit News, the small company, called Clark-Cutler-McDermott Co, makes 175 different pieces of interior trim and acoustic insulation that GM uses in nearly every vehicle it produces in North America.

Citing a source "familiar with the company's production plans," The Detroit News says this is the second time Clark-Cutler-McDermott Co. has run into this kind of trouble. In June 2015, GM used a restraining order to force the smaller company to resume production so the automaker could keep its assembly lines rolling; the latest work stoppage happened last Friday, and that restraining order expired Monday, so the parts supplier is no longer obligated to do anything.

According to documents GM filed with the court, even a one-day interruption of parts supplies could "cause a catastrophic disruption in the supply chain" and affect "countless" other businesses, not to mention GM's own workers, who would be laid off if the company had to shutter its factories. It's a sensitive situation because GM, like most automakers, operates its factories on a just-in-time basis: rather than stockpile parts for later use, deliveries are tightly scheduled so that necessary parts arrive at the right factory shortly before they're needed on the assembly line. It's a well-oiled machine, but a delicate one easily disrupted.

Given it would be in everyone's interest for GM to keep new vehicles rolling out of its plants, you may be wondering, as we were, why the two companies don't work out a deal to keep everything in business, but it seems relations between the two entities are strained: Clark-Cutler-McDermott Co says it has lost US$12 million since 2013 because of "unprofitable" contracts with GM, and so far this year those losses are up to $30,000 per day. Its bankruptcy court submission states the company derives "more than 80 percent" of its revenue from the work it does for GM.

Ironically, Clark-Cutler-McDermott Co has been named a GM Supplier of the Year four times in the past seven years, and GM has loaned the smaller company money and increased prices paid for parts in a bid to keep it afloat, but apparently to no avail.