Summary
- BYD, Chery, Geely and Xiaomi among automakers to make pledges
- Pledges follow steel association outcry, regulatory pressure
- China suppliers hurting from brutal price war that has cut profits
SHANGHAI, (Reuters) – Major Chinese car manufacturers have pledged to make payments to suppliers within 60 days, responding to a recent outcry from steelmakers over long payment times as well as regulatory pressure as the backlash to a brutal price war grows.
Chinese authorities issued new rules in March that require big companies to settle most payments with suppliers within 60 days that became effective June 1. However, suppliers had been worried that there were loopholes for the rules to be circumvented.
Automakers issuing pledges on Wednesday included companies such as BYD and Chery (CHERY.UL) as well as smaller players like Xpeng and Xiaomi. State-owned Guangzhou Automobile Group and FAW Group made their pledges on Tuesday evening.
The pledges come after China’s industry ministry summoned automakers to a meeting last week where they were told to put an end to a punishing price war and excessive competition – factors which have put tremendous pressure on the industry’s supply chain.
Even so, the China Iron and Steel Association felt compelled to publish a statement on Tuesday that said steel companies were struggling with little profit margin and mounting liquidity pressure as some automakers have been asking for price cuts of more than 10% since last year and delaying payments by months.
The association also asked Chinese automakers to learn from the steady and healthy partnerships that Japanese automakers have with their suppliers, which leave a certain amount of profit for suppliers and ensure product quality and innovation.
Yang Hongze, chairman of Autolink, a supplier of intelligent vehicle technologies, said he welcomed the pledges but would like more clarity from automakers about whether payments would be made in cash or commercial paper, and what would be considered the start date for the 60-day period to pay.
“It is a pleasant but difficult change for the industry to move towards a healthy development and grow together,” he said.
Tension has been high in China’s auto industry as the price war which began in early 2023 has shown little sign of abating.
In May, Great Wall Motor Chairman Wei Jianjun worried openly about the deepening price war. He even said that the industry had its own version of property developer Evergrande which was liquidated last year after a major debt crisis, although he did not mention a specific auto company.
This month, Chinese auto dealers called on automakers to stop offloading too many cars on dealerships, saying the intense price war was damaging their cash flow, driving down their profitability and forcing some to shut.
Reporting by Zhang Yan and Brenda Goh; Additional reporting by Gaurav Dogra; Editing by Edwina Gibbs
Source: worldautoforum.com
