Leveraging Critical Vendor Status and Assumption of Contracts to Obtain More Favorable Commercial Trade Terms in Supply Contracts

Factors Contributing to Chrysler and GM’s Bankruptcy Filings

Perhaps no industry was as hard hit during the economic crisis of 2009 than the automotive industry. Chrysler LLC filed for Chapter 11 protection in April 2009, and General Motors Corporation filed for Chapter 11 protection approximately one month later. See Old Carco LLC (f/k/a Chrysler LLC), United States Bankruptcy Court for the Southern District of New York, Case No. 09-50002, Honorable Arthur J. Gonzalez; and Motors Liquidation Company (f/k/a General Motors Corporation), United States Bankruptcy Court for the Southern District of New York, Case No. 09- 50026, Honorable Robert E. Gerber.

Production volumes in the automotive industry decreased dramatically in late 2008 and 2009, and particularly in the six months that preceded the Chrysler and GM Chapter 11 filings (in April and May of 2009, respectively). The automotive supply industry typically suspends operations for a period of two weeks in the summer months, as well as during the December holiday seasons (known as the “shutdown”). In 2008, however, the annual December shutdown (which typically lasts two weeks) was extended by Chrysler and GM for at least two additional weeks at almost all facilities, and many manufacturing and assembly plants were idled for even longer periods. Suppliers whose profit margins had already been squeezed in recent years by the automotive manufacturers (known within the industry as original equipment suppliers, or OEMs) were thus hit with extended shutdowns during which production either stopped or dramatically fell off. Examining of the Domestic Auto Industry, Part I: Hearing Before S. Comm. on Banking, Housing and Urban Affairs, 110th Cong. 88 (2008) (statement of Alan R. Mulally, CEO, Ford Motor Co.)

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