July 13, 2016 / 10:47 PM / in a year

UPDATE 2-GM gets deal with supplier CCM, says plant shutdown threat averted

(Adds background and detail on supplier, GM)

By Paul Lienert

DETROIT, July 13 (Reuters) - General Motors Co told a U.S. bankruptcy court on Wednesday that it reached a deal with an insolvent Massachusetts parts supplier whose struggles had threatened to shut down some or all of GM’s North American plants.

After the hearing, GM spokesman Nick Richards said the automaker already had identified replacement suppliers for the parts and “did not anticipate any disruption” in production.

The judge in the case, heard in the U.S. Bankruptcy Court in Worcester, Massachusetts, ruled on Wednesday that GM could retrieve tooling and finished parts from the supplier, Clark-Cutler-McDermott.

CCM, a 105-year-old supplier of acoustical materials based in Franklin, Massachusetts, was the sole supplier of insulation and other sound-deadening materials to GM, the automaker said in an earlier court filing.

GM had argued CCM’s failure could cause “catastrophic disruption” across the U.S. auto industry, costing it tens of millions of dollars in lost production and potentially throwing “tens of thousands” of employees at GM plants and other GM suppliers out of work.

CCM had been a GM supplier for nearly 50 years. GM in turn was responsible for 80 percent of CCM’s business.

CCM’s attorneys had argued that the company would lose $30,000 a day if forced to continue making parts for GM. GM said it had been funding CCM’s losses since March.

As is typical with such contracts, CCM owned the basic machinery in its plants. But GM owned the special tooling installed in that machinery that was designed to make a variety of insulation and sound-deadening material used under carpets, behind dashboards and in wheel liners on nearly all GM vehicles made in the United States, Canada and Mexico.

The agreement reached Wednesday between GM and CCM would enable the automaker to retrieve the special tooling and all finished parts, while CCM would retain its equipment.

CCM, which last week filed for Chapter 11 bankruptcy protection, said it is seeking a “turn-key sale” to another company.

The case underscores the potential risk in the auto industry of “single sourcing” - contracting with just one supplier to provide critical parts for some or all of a manufacturer’s vehicles.

U.S. automakers have used single sourcing, along with longer contracts and common components used by more vehicles, to command more attractive prices from many suppliers. (Editing by Jeffrey Hodgson)

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