China’s Changan suppliers push back against forced payment cuts

SHANGHAI, June 6 (Reuters) – Some Chinese suppliers to state-owned Chongqing Changan Automobile have written to the automaker after it cut their payments by 10%, saying they were unfairly being forced to pay for the industry’s bruising price war.

The suppliers said Changan (000625.SZ), which also has partnerships with Ford Motor Co (F.N) and Mazda Motor (7261.T), told them in March that a recent wave of price cuts by its rivals had hit sales of some of its models in the world’s largest auto market.

More than 40 brands have cut prices in China since January after an initial move by Tesla (TSLA.O) in a fight for market share as car demand slumps, with the ripples spreading through the wider industry.

Screenshots of the letter from Changan’s suppliers in the southwestern city of Chongqing, where the company is headquartered, first circulated on Chinese social media late on Monday.

Reuters confirmed with two supplier sources familiar with the matter that the letter addressed to Changan’s procurement department was sent to the company.

One of the sources said the amount by which Changan was asking suppliers to reduce their prices varied, with some bigger suppliers asked to absorb cuts of less than 10%.

Zhejiang Tongxing Technology Co (301252.SZ), a vehicle air conditioning systems manufacturer, said in its IPO prospectus earlier this year that Changan Automobile Group was among clients who had asked for lower prices last year.

Changan, Ford and Mazda did not immediately respond to requests for comment.

In the letter, the suppliers said they wanted Changan to reverse the decision, which they said was prompting other automakers to follow suit and ignored the companies’ years of work to support the auto industry.

Over the years, suppliers had become “blood donors” to efforts by Chinese automakers to compete using a low-price strategy, they added.

“It will definitely cause adverse effects at home and abroad and will cause a large number of Chinese auto suppliers to fall into dire straits or go bankrupt.”

Reporting by Zhang Yan, Zhuzhu Cui and Brenda Goh; Additional reporting by Maki Shiraki in Tokyo; Editing by Kirsten Donovan