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GM, Stellantis bail out supplier Unique Fabricating

electruck

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"The company, which also counts Rivian Automotive Inc. and Bosch as customers, aims to continuing [sic] operating amid the restructuring process and potential sale."

https://www.crainsdetroit.com/auto-suppliers/gm-and-stellantis-bail-out-supplier-unique-fabricating

By Kurt Nagl

4–5 minutes


Three of Unique Fabricating Inc.'s largest customers have agreed to bail out the insolvent supplier with price increases and investment of up to $15 million to tide over the company until it sells itself and restructures.
General Motors Co., Stellantis and Yanfeng Automotive Interior Systems Co. entered into an accommodation agreement with the Auburn Hills-based supplier on May 22, according to a filing with the U.S. Securities and Exchange Commission.
At the same time, the company entered into another forbearance agreement with lender Citizens Bank NA, which stipulates that Unique Fabricating must pay $1.23 million in past due interest and attorney and adviser fees.
As part of the accommodation agreement, customers also agreed not to "exercise certain rights of set off, recoupment or deduction" and not to resource parts components to other suppliers.
The deal imposes a deadline of Oct. 31 for the company to be sold to a qualified buyer. The agreement may be terminated by a customer if a default occurs. The company must formulate a restructuring plan, hire a chief restructuring consultant and engage an investment banker within 30 days.
"The accommodation agreement provides for specified price increases to be paid by customers during the term or other funding to be provided by customers to the company through the purchase by customers of a junior tranche of debt to be established under the credit agreement of up to $15 million in the aggregate," the filing said.
The financial struggles of Unique Fabricating, which supplies plastics, rubber and foam, became apparent earlier this year when it failed to report its financials for the fiscal year ended Dec. 31 due its statements being investigated for inaccuracies. Additionally, the company is being investigated for alleged labor rights violations at plants in Mexico.
In its most recent financial report — the one under review — company executives said it took a $6.2 million operating loss and $10.6 million net loss in the third quarter, with projected full-year sales of $136 million. It had just $500,000 in cash and $1.3 million in liquidity under its revolving credit facility.
The company, which also counts Rivian Automotive Inc. and Bosch as customers, aims to continuing operating amid the restructuring process and potential sale.
Unique Fabricating could not be reached for comment Tuesday.
"GM is aware of the developments at Unique Fabricating and is supportive of it as a going concern," GM spokesman David Barnas said in an email. "As such, we are working with several of Unique Fabricating's other customers and its creditors to allow them to be viable long-term through either a restructuring or sale. We do not expect any interruption to GM supply during this process."
Stellantis declined to comment.
Like other automotive suppliers, Unique Fabricating has struggled with production volatility, shrinking volumes and inflation, which have had an outsize impact on smaller companies further down the supply chain.
The accommodation agreement indicates that automakers and Tier 1 suppliers are still willing to make financial concessions to suppliers to keep them afloat, as they did during the supply chain snarls over the past couple of years. When Bingham Farms-based Gissing North America LLC filed for Chapter 11 bankruptcy protection last August, GM, Toyota and BMW agreed to fund Gissing's projected liquidity shortfall of more than $14 million as a bridge to it being sold.
Unique Fabricating (NYSEAMERICAN: UFAB) stock was trading at 23 cents per share as of Tuesday, having lost nearly all of its value since launching its initial public offering in 2015 at $11 per share.
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Interesting, and I suppose potentially an issue that could impact Rivian if Unique Fabricating is their sole source.

It's common for large Japanese manufactures and particularly automakers to utilize sole source supplier. In fact it's usually a key part of their business model that helps to ensure that the prime gets the highest quality possible at the best value from that supplier. To make that happen, the prime works very closely with the supplier, and the prime's assistance at every phase is why it works companies like Honda & Toyota. Of course, this puts the supplier in velvet handcuffs, so it's not without some drawbacks.

In the US, large manufacturers value the lower costs, but typically get them primarily through competitive bidding. This can lead to a situation where the supplier wins large contracts and the competitors leave (or diminish their presence in) that space. That effectively makes some key suppliers sole source. For a while, the prime gets low-cost and high quality but since there is no symbiotic relationship with the supplier, as is the case in the Japanese model, the prime may them be left with having to provide after-the-fact assistance. This is usually far more costly than working upfront, not to mention the adverse impact on the prime if supply is threatened.

I'll stress that the above is just illustration and that we don't know if it's truly the case with Unique Fabricating and its customers.
 

Tr4ckD4ys

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I guess this is no longer relevant... as the supplier just filed for bankruptcy...
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