Parts sector to Stellantis: You can’t have your cake and eat it, too

Top officials representing Canada’s auto suppliers appear ready to push back against new contract language from Stellantis that fully insulates the company against cost increases and also demands returning any savings.

“The majority of our folks feel that they don’t blindly take contracts that have this kind of language in it,” Jeanine Lassaline-Berglund, president of the Canadian Association of Moldmakers (CAMM), told Automotive News Canada.

Purchase-order terms and conditions that took effect for new contracts as of Jan. 1 cover all of Stellantis’ suppliers globally. The new terms were first reported by sibling publication Automotive News earlier in February.

Events such as the pandemic, semiconductor shortages, raw-material price spikes or other disruptions are now “deemed foreseeable” by suppliers, according to the new terms. That means they must assume that these will occur and absorb any attendant costs.

But while they can’t shift these costs to Stellantis through price increases, suppliers are obliged to pass on cost savings they achieve in other circumstances to the automaker.

YANKING THE SUPPLY CHAIN

Stellantis Canada would not comment on the new provisions, which aren’t sitting well with key players of the automotive supply chain.

CAMM and sibling organization Automate Canada represent more than 800 Ontario companies making everything from industrial moulds and tooling to assembly-line robots.

“What’s not certain in the contracts is whether it’s only for [parts] manufacturers or if it is something they’re proposing for their entire supply chain,” said LassalineBerglund, who canvassed her members after learning of Stellantis’ new terms.

Suppliers will take “a pretty hard line that, yeah, this is not something that we’re willing to do,” she said, adding that similar contracts have shown up with overseas customers in recent years.

Lassaline-Berglund’s members are willing to negotiate but won’t know whether Stellantis is until a supplier sits down with the automaker.

“I would think the first wave [of negotiation] is likely going to be a parts manufacturer,” she said.

‘OUR INTERESTS ARE MUTUAL’

Parts makers are concerned about Stellantis’ approach, said Flavio Volpe, president of the Automobile Parts Manufacturers’ Association (APMA).

“These are tight markets for everybody, and most [automakers] have taken the tack to partner on inflationary cost pressures with a healthy supply base and say, ‘Look, our interests are mutual,’ ” Volpe said.

Volpe wondered whether the new terms are because of a change in corporate culture resulting from the merger last year between Fiat Chrysler Automobiles and PSA Group and a push to grow Stellantis.

“It’s probably driven by accounting rather than anybody doing strategic relationship growth,” he said.

In the past, automakers have used their buying power to leverage concessions, Lassaline-Berglund said. As an example, she cited “five by three,” where suppliers were expected to give back five per cent in savings every three years; or efforts by [automakers] to dictate internal production costs. Some suppliers went bankrupt trying to meet those standards, Lassaline-Berglund said.

“This is a little similar,” she said. “They want to play hardball.”

ALL EYES ON NEW TERMS

Lassaline-Berglund is concerned that other automakers could emulate Stellantis’ strategy if it succeeds.

“I think they watch each other closely,” she said.

Volpe agreed, saying that while his sector has great relationships with automakers including Stellantis Canada, “I do know that in the industry, everybody watches each other’s terms as closely as they can.”

Most of the companies in CAMM and Automate Canada are diversified and don’t rely completely on automakers, having learned from previous cost-cutting cycles, Lassaline-Berglund said. If Stellantis doesn’t soften its stance, these suppliers will look for business elsewhere.

“Many of the suppliers in the supply base are not willing to put all of their eggs in one basket any longer,” she said.

There has been talk of challenging the legality of the new terms. U.S. lawyer Jonathan Jorissen told Automotive News that Stellantis’ terms go against the long-standing concepts of “force majeure” or “commercial impracticability,” which excuse shortfalls that result from unforeseen circumstances. Such terms have been used to deal with the ongoing microchip shortage affecting new-vehicle production.

Litigation would be a last resort, said LassalineBerglund.

“Let’s engage in some dialogue,” she said. “Stellantis, talk with your supply base.”