Auto parts companies face late payments

NEW DELHI: Payments over 200 components providers in the auto industry will be biased and delayed as automakers Renault and Nissan, the top two-wheelers Hero MotoCorp , and the homegrown Eicher group have decided to go for force majeure due to restrictions resulting from the 21-day crown-induced shutdown that has closed factories and retail outlets. Force majeure is a term used to describe unforeseeable circumstances that prevent someone from fulfilling a contract.

The decision, sources say, may well mean delays in general payments running between Rs 500 million and Rs 1 billion. In letters to sellers, the companies have cited the lack of business, while claiming that they have every intention of paying as soon as the situation returns to normal.

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In a letter, the country's top two-wheeler maker said, “Hero MotoCorp (HMCL) in the current situation has no visibility of receivables, have stock of BS4&bs6vehiclesinthefield,anddealershippan-indiaarenowshutfor21days.inthissituation,weareleftwithnootheroptionbuttoinvokeforcemajeureandregrettoinformthathmclwillnotbeinapositiontomeetallitsobligations.”

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It added, “Hero MotoCorp made payment on March 22 as per the regular cycle but will not be able to keep up the unblemished track record of timely payment effective today.”

A senior company official said while announcing emergency measures, the company has decided to fully protect the smaller providers . “We have made full payments to all our small vendors and MSMEs as per the due date on a top priority basis. We are releasing the payments to other supply chain partners in a phase-wise manner, we have already made 50% payments to them.”

Renault Nissan Automotive India (RNAIPL) also said the situation affects equipment purchase contracts and orders already issued. As expected, RNAIPL is no longer in a position to meet its obligations under the contracts due to these events of force majeure ... RNAIPL will not be liable for its failure to comply with any obligation required under the Sales Agreement as a result of the pandemic, preventive measures, on our compliance with relevant government orders, instructions and directives.

VE Commercial Vehicles, a JV between Eicher and Volvo, told its providers that the “unprecedented force majeure situation has created a profound impact on the receivables”, resulting in adverse cash flow situation. “I am therefore constrained to inform you that the payment cycles are disturbed, and you may kindly expect delays in payments,” Pradeep Mishra, senior VP (purchasing and supply Chain), said.

Vinod Aggarwal, MD & CEO of VECV, however, said not too much should be read in the statement and rather “the company will go out of its way to bail out providers ” who are in dire straits. “We are even ready to pay advance to the vendors if they have a problem. We will do whatever is required to make sure that providers meet their obligations, be it paying their salaries, or taking care of their fixed costs. We have to take care of them.”

Deepak Jain, President of the Automotive Component Manufacturers Association , He said the group has addressed the issue with companies. First we write to the automotive industry body, Siam . They assured us that they will write to all the manufacturers on an individual basis. We need to bear in mind that there are severe working-capital issues for providers , and requisite cash-flow is not there. We are in need of support at this time.”

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