Coronavirus: A force majeure in the automotive supply, or just another supply chain dispute?
With the outbreak of the coronavirus, automotive suppliers and customers have scrambled to keep the supply chain running. While these efforts have succeeded with few exceptions so far, the ability of suppliers to meet customers’ needs remains in jeopardy in many cases while the virus continues to spread. As in other industries, this has suppliers and their counsel reviewing the force majeure clauses in their contracts to determine if these may provide relief if the suppliers fail to meet delivery requirement or are forced to incur additional costs to do so.
However, the automotive industry is dominated by a very few large OEM customers who rarely agree to incur or share unanticipated costs. One OEM has already notified all of its suppliers that the obligation to deliver parts “is generally not affected by the coronavirus pandemic. A restriction of or even cancellation of your service with reference to ‘force majeure' is only tolerable in tightly limited exceptions….it is your obligation to secure production and delivery even in cases of confirmed infection in your plant.”
Obviously, the customers see coronavirus as just another supply interruption – albeit a large one, to be worked through with suppliers.
Suppliers facing costs resulting from coronavirus – as they should with costs attributable to tariffs, unanticipated raw material cost escalations, and other issues, need to review the specifics of their terms and conditions in terms of both the applicable law (usually the Uniform Commercial Code) and the economic situation to determine whether they can request price relief, how to properly request it, when to seek it, and what the options are if relief is not granted. Similarly, customers with suppliers demanding price increases or other accommodations should review whether or not they can compel delivery via injunctive relief and what their options are in terms of resourcing if they are not successful.
If you have questions about a specific supply chain issue, please contact the McDonald Hopkins attorneys listed below.