Stellantis rescinds ‘burdensome' contract terms for suppliers

Stellantis has rescinded the terms and conditions it forced on its suppliers at the start of the year, responding to the blowback from companies opposed to the new contracts.

The automaker, whose North American base is in Auburn Hills, told suppliers in a letter Monday that it will revert to 2021 terms and conditions, retroactive to Jan. 1, according to a copy of the letter obtained by Crain's Detroit Business.

"Over the last few months, the North America Purchasing Team has worked closely with you to align on the 2022 Stellantis Global Terms and Conditions. Since Stellantis was formed there have been several initiatives across the corporation to converge the former FCA and PSA processes, methods, and ways of doing business," said the letter, signed by Martin Hornbeck, head of purchasing and supply chain for Stellantis NA.

"One of these processes was to create a Global Terms and Conditions for the global purchasing organization," the letter continued. "As we've worked through this process, and heard your feedback, we understand that each region has unique attributes related to the business in that region, and that those attributes cannot be ignored."

The reversal is a victory for suppliers, which have watched their top and bottom lines bleed amid supply chain volatility while automakers haul in profits. Stellantis recorded $43.7 billion in revenue for the first quarter of 2022, up 12 percent from the same time last year.

Stellantis' step back on purchase order terms and conditions for 2022 that could have forced North American suppliers to reduce prices whenever they achieve any cost savings and remain locked into unfavorable contracts for as long the automaker wanted also suggests that although automakers historically have the upper hand, the supply base does have some leverage, especially when its back is against the wall, said Jonathan Jorissen, member at Brooks Wilkins Sharkey & Turco PLLC in Birmingham, which specializes in supply chain litigation.

"It shows that you do have a say and you don't have to just sign up for what's being put out there," Jorissen said. "In that respect it is a big win. If they go back to the last effective Stellantis terms, they're still tough OE terms. It's not like the playing field is leveled for suppliers and Stellantis."

Jorissen said that since Stellantis established the new terms at the beginning of the year, he has sent the automaker dozens of objection letters on behalf of 40-50 supplier clients.

He said the directive was interpreted as a "slap in the face" to suppliers, which already were feeling the brunt of the pain of inflated costs for commodities, labor and freight, as well as production shutdowns.

"It was a surprise. They were caught off guard and the feedback was immediate," he said. "The majority of conversations were, 'We can't sign up for these. They are so oppressive, so burdensome.'"

Stellantis is announcing its reversal just a week before Southfield-based Plante Moran releases its annual North American Automotive OEM-Supplier Working Relations Index Study, in which the automaker ranks consistently behind the pack. Stellantis COO Mark Stewart said earlier this month that the automaker continues "to work with the supplier base" to reduce costs and benefit end customers.

Jorissen said some suppliers that could afford to cut their business with Stellantis because the terms were so unfavorable.

Stellantis spokeswoman Jodi Tinson told Crain's in an email that the automaker did not lose any suppliers. Of the new terms, she said that "nothing has changed from the prior contractual commitments."

"That said, it has always been Stellantis' practice to work with suppliers on a case-by-case basis," Tinson added. "As a good business practice, we will continue to evaluate our terms and conditions to ensure we are operating as efficiently as possible."

Jorissen said there is precedent for automakers caving to pressure from suppliers—General Motors Co. did so 10 years or so ago. Still, he is surprised Stellantis did not anticipate the blowback.

"Maybe they just didn't think it was going to be so extreme," he said.

The Stellantis letter to suppliers continued, "We appreciate your input and feedback into this process. We will work to continue to align with our supply base and aim for continued success for our respective organizations."