Changan Automobile forced deduction of supplier payment was appealed, supplier called for "not too rolled"

A letter entitled "It is urgent to protect small and medium-sized auto parts entities - a letter of appeal to the procurement department of Changan Automobile" has recently circulated on the Internet. The content mainly alleges that Changan Automobile forcibly withheld payment from hundreds of its suppliers.

The "Letter of Appeal" mentioned that on March 28, 2023, the procurement department of Changan Automobile Company hastily issued a "letter to supplier partners based on survival, strategy, competition, customer - common response" to hundreds of suppliers despite contractual constraints, the central meaning of which is to use the unpaid payments to suppliers under its control, notify and announce that it will directly deduct 10% of the supplier's payment in order to cope with the slow sales of some models in the auto market caused by the price reduction of some car companies.

According to media reports, if suppliers ask for payment, they will be paid by Changan Automobile's "one-size-fits-all system and 90% of the payment." Some suppliers said, "As a supplier, I will cooperate with the OEM to reduce the price every year, but it has never been directly deducted in the system like this, and the range is not as large as 10%."

It is understood that according to the industry's common practice, there will be an agreement between the OEM and the supplier. In the agreement, a price change clause will be signed, for example, due to the price increase or decrease of raw materials, the price adjustment can be made. In addition, depending on the scale of supply and technological improvements, there may also be a decrease of 3%-5%. However, all price changes are based on negotiations between the parties and according to the contract.

The reason why this time will arouse special attention in the industry is because the main engine factory directly cuts 10% of the payment in the system, which is rare before.

Of course, in addition to cooperative relations between OEMs and suppliers, there is also a game relationship - strong OEMs meet weak suppliers, and naturally "have no fear"; Conversely, strong suppliers can choose not to supply. However, in the actual situation, except for a small number of giant enterprises, most suppliers are afraid of offending OEMs.

For Changan Automobile's approach, the head of the China region of an international parts giant told The Paper that this time should be a "special situation". But he called for "hope (the industry) is not too volatile and everyone develops in an orderly manner."

It is not difficult to understand that with the rapid development of smart electric vehicles, many companies have greatly increased their investment and damaged their profit margins in order to rapidly transform.

According to public data, the sales profit margin of the mainland automotive industry was only 5.7% last year, which was at a low profit level in the downstream industry. Taking Changan Automobile as an example, its revenue in the first quarter of 2023 was 34.556 billion yuan, a year-on-year decrease of 0.06%; Net profit increased by 53.65% year-on-year to 6.970 billion yuan. However, if the performance of Deep Blue Automobile, which is newly included in the statement, then Changan Automobile's non-net profit in the first quarter was 1.481 billion yuan, down 34.75% year-on-year.

In order to ensure its own profits, OEMs have made measures to put pressure on the supply chain, which is understandable, but "does not talk about martial virtue". As a supplier, you face a "dilemma".

According to media reports, in addition to Changan Automobile, SAIC Motor Passenger Vehicle and Geely Automobile have discussed with suppliers to cooperate with their price reductions, but they are not as tough as Changan Automobile.

So, in the face of a strong OEM, how should suppliers protect their legitimate rights and interests? In this regard, Guo Qing, a senior partner at Kyoto Law Firm, told The Paper that "from a legal point of view, Changan Automobile's forced deduction of 10% of the purchase price is a breach of contract, and the supplier can sue according to law, and there is a high probability of winning the lawsuit." But is this a good result for suppliers? Not necessarily. Guo Qing pointed out, "Although the legal level wins, in terms of commercial terms and long-term cooperation in the future, the two parties may terminate the contract, and the OEM will no longer choose this supplier to supply, and the cooperative relationship will end." This is a bigger loss for suppliers."

Resolving the contradictions between the two sides through consultation still seems to be the best policy. In the period of change in the automotive industry, many experts have called for the upstream and downstream of the industrial chain to live in harmony and coexist in order to smoothly ascend to the next continent.