Stellantis' course change not a total victory for suppliers

DETROIT — Stellantis has reversed course on the most controversial changes it imposed on suppliers earlier this year, but not every tweak it made has been rolled back.

Gone is a new rule requiring North American suppliers to immediately pass on cost savings to Stellantis, which created an issue because there was no corresponding allowance for suppliers to get higher prices from the automaker when their costs rise. Stellantis also removed its newfound ability to extend a supplier's contract unilaterally.

The pullback is a win for a supply base that has faced extensive pressure in recent years as the auto industry pushes through the pandemic and a microchip shortage that has curbed vehicle production.

While the North America changes have been undone, Stellantis is keeping its revamped global terms and conditions in place. Some suppliers might still demand the company eliminate some aspects they find unfavorable, said Jonathan Jorissen, a lawyer at Brooks Wilkins Sharkey & Turco.

"Most of the suppliers that I've talked to objected to both the global terms and the North American terms, so it's kind of a package deal," Jorissen said. "So it's kind of interesting the path that Stellantis is now taking, still trying to stick with the global terms, but swapping out the North American exhibit for the prior terms and conditions. Because I know that they've received a number of objections to those global terms, so the story is not over yet."

Stellantis introduced the new terms as it makes the costly transition to electric vehicles. CEO Carlos Tavares has emphasized that the automaker must make productivity gains in the coming years to offset additional expenses incurred when building EVs.

"Our buyers are working daily with suppliers to clarify questions and ensure business continuity," the company said in a statement last week about reversing the changes in purchasing terms. "We will continue to listen to and align our processes with our supply base."

Tavares told Automotive News in March that Stellantis and suppliers are in the EV journey together, but the automaker's aggressive moves to save money were a step too far for the supply base.

"The supply base has to make a major investment in the EV platforms," said Vanessa Miller, a partner at Foley & Lardner in Detroit. "That risk and those costs are going to be borne by more than just the tiered suppliers. The OEMs also have to bear some investment costs and some volumes and some risks associated with those, or else the suppliers aren't going to be very committed to making those investments without the certainty of volumes."

What comes next? Jorissen said suppliers will have a renewed focus on the global terms as well as the 2021 North America terms and conditions that came out after the merger.

Suppliers should keep an eye on issues around intellectual property and product design in the global terms, he said. Intellectual property is something "I would encourage suppliers to look carefully at," he said, "as there are some broad licenses and an ability to basically have your product made by somebody else in certain circumstances."

Lawyers at Foley & Lardner have been studying the evolving language within Stellantis' terms and said suppliers should be aware of the global changes that remain.

For instance, the firm pointed out that suppliers have to bear all costs associated with regulatory compliance.

"I wouldn't necessarily say that's a huge change so much as it is avoiding any disputes or discrepancies that may come into play," said Nicholas Ellis, an attorney at Foley & Lardner who specializes in manufacturing and supply chain disputes. "If, for example, there are changes in the regulatory environment, the regulatory scheme really would remove any argument that the supplier has the ability to push those up the chain to Stellantis. They're going to be responsible for those costs."

The global terms also say suppliers will have to guarantee that products are accurately labeled with their place of origin.

"To the extent the supplier is getting materials from down the supply chain," Ellis said, "it's going to officially impose the burdens on the suppliers to do their due diligence and ensure the accuracy of materials that they are getting from their subsuppliers."