It is equal parts awe-inspiring and terrifying to watch tens of thousands of microscopic plastic clips, wiring harnesses, fasteners, and stamped metal brackets dance in precision sync to spit out a functional 5,000-pound SUV every 60 seconds.
Which brings us to General Motors.
According to a recent Securities and Exchange Commission filing reported by Bloomberg, the General is formally abandoning the holy grail of post-war manufacturing—Just-In-Time (JIT) delivery—in favor of building a massive, off-balance-sheet stash of critical vehicle parts worth up to $4.5 billion.
Because tying up $4.5 billion in cash to stash parts in a dark warehouse makes accountants weep, GM reached a deal with a third-party intermediary named Procura Auto Parts LLC. Procura. Backed by financing from premier lenders like JPMorgan Chase and Banco Santander, Procura will buy and hold the critical inventory from GM's key suppliers. GM pays Procura interest and management fees upfront and then formally buys the components only when an assembly line actually needs them.
The gymnastics are delightful: it lets GM keep a massive safety net of "just-in-case" inventory without having to list billions of dollars' worth of static assets on its own balance sheet.
But don't get it twisted, GM is paying dearly for the peace of mind. On top of a 0.25 percent annual fee for unused credit capacity, GM will pay Procura an interest rate set at the Secured Overnight Financing Rate plus 1.55 percent.
Why spend millions in interest fees just to buy your own car parts later? Because the last five years have brutally exposed just how fragile globalized supply lines really are.
For fifty years, automakers operated on the gospel of Toyota’s lean manufacturing model: keep inventory practically non-existent and rely on continuous truckloads of parts arriving hours before installation
It worked brilliantly to maximize short-term cash flow—until the 2020 semiconductor drought left tens of thousands of feature-stripped trucks sitting unfinished in giant parking lots.
GM hasn't publicly specified which exact components will make up its $4.5 billion rainy-day stash, but you can bet semiconductors, rare-earth motor materials, and high-risk electronic modules sit near the top of the shopping list.
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