TABLE OF CONTENTS

• Jurisdiction: United States

TABLE OF CONTENTS

Chapter 1: Introduction..............................................................................1

A. Changes in the Automotive Industry: 2006-12.................................1

B. Challenges Caused by Overcapacity in Europe................................3

C. Broader Scope of this Treatise.........................................................5

D. Major Risks Caused by Supplier Bankruptcies................................6

1. For Customers.............................................................................6

2. For Other Suppliers.....................................................................7

Chapter 2: Hallmarks of a Financially Distressed Supplier......................9

A. Identifying Troubled Suppliers........................................................9

B. Early Action Strategies for Vendors...............................................10

1. Analysis and Monitoring of Supplier's Financial Condition...........10

2. Analysis of Cash Flow and Pricing Policy....................................11

3. Role of Turnaround Consultants and Accountants.........................11

4. Role of Legal Counsel................................................................12

C. Early Action Strategies for Customers...........................................12

1. Watch for Early Warning Signs.................................................... 12

2. Conduct Plant Tours...................................................................13

3. Monitor Delivery and Performance ............................................. 13

4. Monitor Press and Public Reports ............................................... 13

5. Create a Team to Respond to Troubled-Supplier Situations............13

6. Review Purchase Orders and Contracts.......................................14

7. Retain Ownership of Tooling.......................................................14

8. Consider Freezing Accounts Payable...........................................14

9. Identify an Alternative Supplier...................................................15

10. Create a Parts Bank ................................................................... 15

11. Accept Price Increases or Provide Other

Financial Accommodations ......................................................... 15

12. Find Alternate Suppliers of Raw Materials...................................16

13. Enter into Plant Access Agreements.............................................16

Chapter 3: Identification and Analysis of Contracts with a Troubled Supplier.......................................................................... 17

A. Article 2 of the Uniform Commercial Code Governs

All Transactions Involving the Domestic Sale of Goods................17

1. Identification and Analysis of Typical Contract Documents............17

2. General Rules of Contract Formation and Construction................18

B. United Nations Convention on Contracts for the International Sale of Goods................................................29

C. Mitigation of Sellers' Risk via Third-Party Credit Enhancements and Purchase-Money Security Interests..................32

1. Third-Party Credit Enhancements................................................32

2. Purchase-Money Security Interests in Inventory and Equipment........................................................................... 38

3. Sale on Consignment .................................................................. 41

D. Special Tooling Issues...................................................................42

1. Customer-Supplied or Ordered Tooling........................................43

2. Tooling Manufactured by Supplier for Another Supplier ................ 45

3. Production Part Approval Process...............................................46

4. Jurisdictional Considerations......................................................47

Chapter 4: Remedies Available to the Nondefaulting Party...................51

A. Request for Adequate Assurance under UCC § 2-609....................51

B. Anticipatory Repudiation under UCC § 2-610...............................54

C. Sellers' Remedies under UCC Article 2.........................................56

1. In General.................................................................................56

2. Termination of Credit Terms........................................................ 57

3. Reclamation .............................................................................. 57

4. Stoppage of Goods in Transit ...................................................... 58

5. Identification and Salvage of Goods...