General Motors reports its supply chain risks

20 August 2010

20 August 2010 | Lindsay Clark

Automotive giant General Motors has given details of the risks to its business from its supply chain in a report to potential investors as it plans to float on the US stock exchange.

The prospectus for the automotive giant’s initial public offering, following a government bail-out in 2008, reveals a risk to the business in using a small number of suppliers for certain technologies. It also highlights the importance of having strong relationships with key vendors.

The investor document said: “Some raw materials, such as corrosion-resistant steel, are only available from a limited number of suppliers. We cannot guarantee we will be able to maintain favourable arrangements and relationships with these suppliers.

“An increase in the cost or a sustained interruption in the supply or shortage of some of these raw materials, which may be caused by a deterioration of our relationships with suppliers or by events such as labour strikes, could negatively affect our net revenues and profitability to a material extent,” said GM, which is majority-owned by the US and Canadian governments.

In addition, the report added that for materials such as steel, non-ferrous metals such as aluminium and copper, and precious metals such as platinum and palladium, price volatility was a problem. The carmaker said: “The prices for these raw materials fluctuate depending on market conditions. In recent years, freight charges and raw material costs increased significantly. Substantial increases in the prices for our raw materials increase our operating costs and could reduce our profitability if we cannot recoup the increased costs through increased vehicle prices.”

However, price rises in raw materials, such as steel, which were a concern earlier this year, were abating, the documents said. “In early May 2010, however, we saw a steep decline in commodity prices in response to European sovereign debt issues and concerns over a slowdown in China.”

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