GM, Ford turn to fast-payment programs to aid suppliers hit by shutdowns

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General Motors Co and Ford Motor Co are using fast-payment programs set up with financial lenders to help cash-strapped small suppliers survive production shutdowns caused by the coronavirus pandemic.

Under the deal, a supplier gets an earlier payment from Wells Fargo for the full invoice, after paying a financing fee. GM later pays Wells Fargo the full amount.GM said the cost of financing under its program is linked to the automaker’s credit rating and not the supplier’s, allowing the smaller companies to leverage GM’s financial strength and achieve lower costs. It did not disclose other financial details.

Some supplier executives and analysts compared the potential cost of taking accelerated payments to credit-card debt. Some of these programs can cost more than a line of credit with interest rates in some cases running as high as 3% to 4% per 30 days. The pressure on suppliers may only increase in the third quarter as banks pull back on making loans, Eisenberg said. “If we have this second wave in the fall, the access to capital that everyone had in March won’t be the same in September and October.”

“The cost of such deals compared to the cost of being out of business is not really a choice,” he said.

Source: Car News Wire (carnewswire.net)

 

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