GM makes $4.5 billion deal with parts company
General Motors has reached a $4.5 billion materials agreement with Procura Auto Parts, reportedly aimed at avoiding supply chain delays or shortages similar to those in the last five years, including the chip shortage that left some GM vehicles without functioning ADAS features.
According to an Aug. 7 Securities and Exchange Commission (SEC) 8-K filing, General Motors Co. and General Motors, LLC entered into a master irrevocable payment undertakings (IPU) Agreement with Procura, the “paying agent.” Essentially, GM will issue IPUs to Procura in exchange for advanced funds to certain GM suppliers. The suppliers will then acquire and hold inventory on behalf of GM, which is noted as a “program” in the filing.
“The purpose of the program is to secure supply of certain critical inventory for the production of retail and fleet vehicles in the event of supply chain disruptions that may arise for various reasons, including extreme weather, natural disasters, cyberattacks in our supply chain, excessive demand, and other similar events,” the 8-K filing states. “Under the program, the suppliers that receive such funds will acquire and hold the inventory until it is needed by the company to produce vehicles (the ‘inventory’).”
It adds that Procura will obtain the program funding from JPMorgan Chase Bank and Banco Santander, as supported by GM’s IPUs.
General Motors LLC, acting as the coordinator, will facilitate the program’s administration on behalf of GM. Procura, as the paying agent, will also perform various tracking and reporting activities related to the acquired inventory.
According to the filing, GM will make payments on the IPUs following applicable parts usage from inventory no later than Aug. 6, 2029, by GM or its affiliates.
“The program provides for a maximum aggregate outstanding face amount of IPUs of $4.5 billion at any time (the ‘facility limit’). The program provides for a twelve-month funding period (the ‘availability period’) commencing on Aug. 7, 2026, during which IPUs may be issued by the company,” the filing states.
The prepayments made to suppliers will be accounted for as GM assets and each IPU will be reflected as unsecured debt, according to the filing.
“The payments made by the paying agent on behalf of the company will be reflected as an operating cash outflow, offset by a corresponding financing cash inflow in the company’s consolidated statements of cash flows as if the company had made the payment to the suppliers itself,” the filing states. “The payment made by the paying agent will be excluded from adjusted automotive free cash flow until the inventory is purchased by the company.”
CNBC adds in its article: “GM declined to disclose what parts the company may be targeting. Problematic parts for the automotive industry have included semiconductor chips, including dynamic random access memory, rare earths, and wire harnesses.”
It notes the deal comes after years of global automotive supply chain issues and OEMs’ reevaluations of parts sourcing, including GM, following U.S. tariffs and a push to move away from Chinese companies. The U.S. Congress has also been working to move away from allowing the sale of Chinese connected vehicles in the country.
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