The crisis in the automotive sector is causing a major supplier to resort to a previously unimaginable tactic: Pierre Boulet, CEO of French plastics processor Novares (Paris; www.novaresteam.com) is demanding compensation payments of tens of millions of euros from its customers in car production for cancelled orders. The company confirmed the plan to Plasteurope.com following a Reuters report on the matter (see Plasteurope.com of 27.10.2021).

Boulet justified the measure by noting that since the beginning of the year, OEMs have stopped production in more than 2,000 cases due to a lack of semiconductors without telling Novares at an early stage. In some cases, the processor’s customers supplied information about line shutdowns with as little as 48 hours’ notice. The short-term nature of the cancellations has meant that Novares' inventories have grown enormously, which ties up massive amounts of capital.

Boulet said his company cannot bear the financial risk for its customers financial constraints. He however noted that he prefers to discuss the issue with the firms instead of going directly into legal actions.

It remains to be seen how willing the OEMs will be to pay. If the Novares plan works, it could set a precedent for the automotive suppliers and in some places put the already tensioned relationship between suppliers and OEMs to a new, difficult test.

According to Reuters, the company’s plastic components are used in one in three cars worldwide.

Novares has already learned a painful lesson about the economic constraints of the supplier industry. The French company encountered payment difficulties several times in recent years, most recently last spring when it filed for insolvency (see Plasteurope.com of 14.05.2020). It was able to rebuff takeover offers after securing enough financing to continue operations. And in April of this year, the company presented solid figures for 2020 with sales of EUR 1 bn and an operating result of almost EUR 53m.