Suppliers to Chongqing Changan Automobile, a state-owned Chinese automaker, have expressed their dissatisfaction after the company reduced their payments by 10%. The suppliers argue that they are unfairly being made to bear the costs of the industry’s intense price war.
Changan, which has partnerships with Ford Motor Co and Mazda Motor, informed its suppliers in March that the price cuts initiated by its rivals had adversely affected sales of some of its vehicle models in the world’s largest auto market. This move by Changan came after more than 40 brands in China had already reduced prices since the beginning of the year to compete for market share amid declining car demand.
Screenshots of a letter from Changan’s suppliers, located in the southwestern city of Chongqing where the automaker is headquartered, started circulating on Chinese social media platforms on Monday. Reuters has confirmed that the letter, addressed to Changan’s procurement department, was indeed sent to the company. According to two sources familiar with the matter, the suppliers expressed their concerns about the payment cuts. One of the sources mentioned that the extent of the price reduction varied among suppliers, with some larger suppliers asked to bear cuts of less than 10%.
Earlier this year, Zhejiang Tongxing Technology Co, a manufacturer of vehicle air conditioning systems, stated in its IPO prospectus that Changan Automobile Group was one of the clients who had requested lower prices last year. However, Changan, Ford, and Mazda have not yet responded to requests for comment regarding the current situation and the suppliers’ protests.
In the letter addressed to Changan, the suppliers expressed their desire for the company to reverse its decision to reduce payments. They argued that such a move not only compelled other automakers to follow suit but also disregarded the years of effort they had put into supporting the auto industry. The suppliers emphasized that they had been “blood donors” for Chinese automakers, supporting their low-price strategies to remain competitive. They further warned that the payment cuts would have adverse effects domestically and internationally, potentially leading to severe financial difficulties or bankruptcy for many Chinese auto suppliers.
The recent protest by Chinese suppliers to Chongqing Changan Automobile highlights the growing discontent within the industry due to payment cuts resulting from the fierce price war in the Chinese auto market. The suppliers have demanded that Changan reconsider its decision, as they believe it not only undermines their contributions but also poses significant risks to their businesses. The outcome of this dispute and any subsequent response from Changan, Ford, and Mazda will be crucial in determining the future dynamics of the Chinese auto industry.
