General Motors (GM.US) reaches a maximum $4.5 billions parts procurement agreement, aiming to avoid supply chain bottleneck risks

Zhitong Finance APP has learned that General Motors (GM.US) has recently entered into a unique parts procurement arrangement worth up to 4.5 billion USD, aimed at preserving cash while guarding against supply chain disruptions that have severely impacted the global auto industry this century.

According to a public filing submitted on Tuesday, this procurement financing facility of up to 4.5 billion USD involves a specialist company called Procura Auto Parts, which focuses on sourcing rare or critical components. Procura will secure funds through a syndicate led by JPMorgan Chase and Banco Santander, and will make advance payments to specific suppliers on behalf of General Motors.

In return, General Motors will provide a formal written document called an Irrevocable Payment Undertaking (IPU), promising to repay Procura after the relevant components are put into production use, and no later than July 31, 2029. This arrangement enables General Motors to move inventory costs off its balance sheet while better securing future supplies.

The filing shows that General Motors will pay interest, a mutually agreed premium on amounts actually used, and a customary annual fee on any unused portion during the year. In accounting treatment, prepayments are listed as assets, each procurement is recorded as unsecured debt, and in the cash flow statement, payments are treated as if General Motors had paid suppliers directly. These payments are not included in adjusted automotive free cash flow until General Motors actually takes delivery of inventory; typically, the related capital is recognized within 90 days following procurement.

General Motors declined to disclose specific parts targeted by the agreement. “Problematic parts” faced in the auto industry include semiconductor chips (including dynamic random-access memory), rare earth materials, and wiring harnesses.

This agreement was reached after years of turmoil in the global automotive supply chain, as, following increased US tariffs and moves to “de-China” the supply chain, General Motors and other automakers have been re-evaluating their sourcing or parts strategies. The filing reveals that General Motors formally finalized this agreement with Procura and the aforementioned banks last Friday.