Stellantis Deflects Risk Onto Suppliers with New Terms and Conditions

Here we go again! Stellantis/FCA is setting the stage for more supplier grief and pushback with the release of their new their new terms and conditions. Overreach? Maybe in some respects as suppliers are expected to bear the risks of future disruptions. As the auto industry navigates an EV revolution, every OEM will need will as much capital as possible to reinvest to ensure their viability during this transformation. Passing on costs and risks may be just the beginning of changes that suppliers will face.

Below are only a handful of key points that we believe will have the most impact on suppliers. Our advice to clients is to seek legal assistance on these critical changes outlined in their terms and condition agreement.

• N.A 4(c),6 Volume Projections, Capacity, Requirements, and Release Authorization – FCA can request suppliers to build safety stock if they feel production could be impacted. No real issue here, but you will want to ensure that the cost of complying with this requirement is built into your agreement. Safety stock builds come at a high cost of overtime and impact on tooling.
• N.A 7(a), General Warranty - FCA is now including testing as part of their general warranty terms, this could have a big impact to certain suppliers. The requirement of suppliers to “perform all testing necessary to ensure that the goods are not defective in any way” is unusual. It is difficult to determine how suppliers could be held responsible for testing when the OEM is ultimately responsible for vehicle testing given the fact that suppliers rarely have access to a completed vehicle.
• N.A. 8, Prices – Suppliers are now obligated to pass through all savings (direct or indirect) that they generate to FCA but may not raise prices if/when costs increase. Careful consideration needs to be taken on what the supplier is agreeing to when quoting new business, given the current environment. Suppliers, where possible, should have commodity price escalators built into their contracts to ensure viability in the event of rapid price increases as we are currently experiencing.
• N.A 9, Property and Tooling – Suppliers are now to warranty tooling for potentially two years past the last use. This one seems to be a potential overreach given the unknown use of the tooling or ultimate life of the program. Careful consideration needs to be taken by every supplier dealing with tooling to ensure they do not get hit with excessive tooling repair costs.
• N.A. 13, Payments, Commitments; Claims Adjustment – When you are looking to improve your working capital, delay payment. Well, FCA is indeed looking to extend payment terms to 90 days. Suppliers, especially small to medium enterprises (SMEs) should work to negotiate current terms in place, vs agreeing to extend payment terms to 90 days.

The situation has evolved since this article was written. Click here for the latest information.