"Many suppliers are sending letters to the auto manufacturers saying 'We deem ourselves to be insecure and you need to provide adequate assurance that you're going to pay us. And if you don't, we reserve the right to stop shipping you," Roger Frankel, head of the restructuring group at law firm Orrick, Herrington & Sutcliffe, was quoted as saying by Reuters.
The Uniform Commercial Code allows suppliers to ask for assurance of payment if they have reasons to believe their clients will no longer be able to pay. And how should they interpret Fritz Henderson's statement in which he said that bankruptcy is still an option for GM, in case the new 60 days deadline isn't met?
Part suppliers, even if they were reassured by the US government with the $5 billion aid package approved two weeks ago, are still trying to cut their possible losses. New commercial requirements made to the manufacturers now include pay-on-delivery and payment terms shortened to 10 to 30 days.
"One supplier not wanting to continue (shipping) products that are mission critical, and with no alternative vendor stepping up, well, that one little supplier could shake everything,"Jerry Mozian, Tatum Executive Services restructuring expert said.
Yet, braking the ongoing contracts is not an issue, as no one can say how all is about to play out. If GM or Chrysler file for Chapter 11, some suppliers might have a chance of becoming "critical" to the process and keep getting pay. If they don't, voiding contracts would have proven to be a bad move...
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