GM has signed an agreement to purchase auto parts worth up to $4.5 billion
U.S.-based General Motors has signed a renewable agreement to purchase auto parts worth up to $4.5 billion. The deal is intended to help the automaker save money and avoid supply chain disruptions that have affected the global automotive industry in recent years, according to CNBC.
According to a public document from GM, the agreement involves Procura Auto Parts, a company that specializes in sourcing rare or critical parts. Procura will receive financing from a syndicate of banks led by JPMorgan Chase and Banco Santander to make advance payments to individual suppliers on behalf of General Motors.
After the parts are used in production, GM will issue formal payment obligations—known as IPUs—to Procura. The company must repay them no later than July 31, 2029. According to the document, GM will pay interest, an agreed-upon surcharge for components used, and a standard annual fee for the unused portion of the credit line.
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For accounting purposes, advance payments will be recorded as an asset, and each purchase will be treated as an unsecured liability. Cash flows will be accounted for as if General Motors had paid the suppliers directly. Such payments will not be included in the automotive business’s adjusted free cash flow until GM actually purchases the inventory. The company typically records such transactions in its books within 90 days of purchase.
GM has not disclosed exactly which components may be purchased under this arrangement. Among the items posing challenges for the automotive industry, CNBC cites semiconductor chips—particularly dynamic random-access memory (DRAM) chips—rare-earth materials, and wiring harnesses. The agreement with Procura and the banks was signed on Friday, according to a GM document.
