Auto parts companies face late payments

NEW DELHI: Payments to over 200 component suppliers in the auto industry will be partial and delayed as car makers Renault and Nissan, top two-wheeler seller Hero MotoCorp, and the homegrown Eicher group have decided to go for ‘force majeure’ due to restrictions resulting from the 21-day corona-induced lockdown that has shut factories and retail sales 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 overall payments running between Rs 500 crore and Rs 1,000 crore. In letters to vendors, the companies have cited lack of business, while assuring that they have all the intentions of paying back as soon as the situation normalises.

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 & BS6 vehicles in the field, and dealership pan-India are now shut for 21 days. In this situation, we are left with no other option but to invoke force majeure and regret to inform that HMCL will not be in a position to meet all its obligations.”

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 suppliers. “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 the equipment purchasing contracts and orders already issued. “As you would have expected, RNAIPL is no longer in a position to fulfil its obligations under the contracts due to these force majeure events… RNAIPL shall not be responsible for its failure to perform any obligation required under the Master Purchase Agreement as a result of the pandemic, preventive steps, on our compliance with the relevant government orders, instructions and directives.”

VE Commercial Vehicles, a JV between Eicher and Volvo, told its suppliers 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 suppliers” 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 suppliers 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, said the grouping has taken up the matter with the companies. “We first wrote to auto 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 suppliers, and requisite cash-flow is not there. We are in need of support at this time.”