Embattled Auto Supplier Likely to Close After GM Cuts Ties

When Sakthi Automotive Group USA first opened its doors in 2014, it was to major fanfare. The first new auto supplier to open up in the Detroit area in 10 years, this Indian-owned company built a flourishing campus producing knuckles and tooling arms for several major OEM clients.

But the success story didn’t end there. Sakhti was lauded for hiring practices that gave priority to Detroit residents and even offered jobs to more than 200 parolees looking for a second chance. It was estimated that, by 2020, Sakthi would have invested $100 million into the Detroit area.

But all that may come grinding to a halt, as Automotive News is reporting that Sakthi is on the verge of shutting its doors. And on the surface, it looks like the reason is clear: the customer responsible for more than 70% of Sakthi’s business – General Motors – recently cut ties with the firm. But it appears that’s not even close to where the problems started.

Auto News points to evidence of extreme mismanagement and the former CEO, Lalit Kumar, told the outlet that after he was ousted by the company’s chair in 2018, Sakhti execs lost nearly $19 million in the six months that followed.

Meanwhile, orders continued to pile up, and so did bills. Huntington Bank, following up a loan default notice, accused Sakthi of operational mismanagement, using as evidence $9 million in charges for premium freight the company needed to meet customer shipments. Kumar also says the company owners pulled profits out of the business, rather than investing them back in to help the company launch its platform for a new, massive GM order supplying parts for its SUVs.

This past spring, with losses mounting at a rate of nearly $900,000 per week, Sakthi was put into receivership and things just got worse from there. A deal was struck with one of Sakthi’s owners to buy the rest of the company, but the appointed receiver’s apparent attempt to strong-arm GM into supporting certain terms of the deal  by withholding shipments – caused the automaker to cut ties, all but killing Sakthi’s chances for a comeback.

Keep in mind, GM had already loaned the company more than $9 million to help keep the parts flowing, but the automaker had apparently hit its limit, and the result of the botched receivership now means that 750 people will lose their jobs. The other losers in this debacle are Michigan taxpayers, who funded a $3.5 million job creation grant to support the business.

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