Covid-19: European car makers prepare to re-start production

The European Automotive Suppliers’ Association (CLEPA) and the European Automobile Manufacturers’ Association (ACEA) have jointly adopted a code of business conduct in view of Covid-19 to support a "rapid and smooth restart of the automotive industry".

The European automotive industry has been greatly affected by the Covid-19 crisis, with manufacturing coming to a standstill because of supply shortages and falling demand.

"Several automobile manufacturers have shut down their production or decreased their production capacities immensely as a result of supply shortages from China as well as the decrease of incoming orders," said Sibylle Schumacher, a dispute resolutions expert focusing on the automobile industry at Pinsent Masons, the law firm behind Out-Law. "In consequence a number of European suppliers also had to shut down their plants due to the substantial decrease of incoming orders. As the countries now lift their Covid-19 lockdowns at different paces, this will most likely lead to difficulties when reviving the contractual relationships."

"The automotive eco-system resembles an intricate clockwork and today’s unprecedented standstill of operations risks doing a lot of damage to an otherwise thriving, innovative and competitive industry", a statement by CLEPA and ACEA said.

CLEPA and ACEA said that the success of the exit from the corona crisis will depend on the industry sharing information to ensure that companies in the supply chain can plan and act as effectively as possible.

"The Code of Business Conduct shows a general commitment of the Automobile Manufacturers as well as Automotive Suppliers to find reasonable solutions for the ramp-up phase after the shutdown. This is a sign that they are in principle willing to work together to recover from this crisis jointly and fair. However, it will remain to be seen, whether these words are followed by deeds", said Benita von Fritsch of Pinsent Masons. "The code of conduct leaves quite some room for interpretation, since it is rather a stipulation of best practice and not legally binding."

There are 13.8 million Europeans working directly and indirectly in the auto industry. As a consequence of the crisis, more than a million automobile manufacturer employees are on temporary leave, including in the supply chain and dealerships. According to CLEPA and ACEA the loss of revenue is estimated to run into double digit percentages and uncertainty remains as to how quickly the sector can recover. The industry, in close coordination with public authorities, is seeking to gradually restart manufacturing in the next few weeks.

In five chapters, the code of business conduct gives manufacturers and suppliers guidance on the industry's approach to overcome the COVID-19 crisis:

Workplace safety

The code of conduct highlights that "health and safety of citizens and employees is a priority" and underlines the commitment to provide a safe work environment as well as a safe journey to and from work in line with applicable safety standards. Also, the signatories intend to "call on public authorities for harmonised measures across the EU" and to "share best practices on health and safety with partners along the value chain".

Transparency

According to the code of conduct, "a successful exit from the crisis will require timely sharing of critical and appropriate information". Partners in the value chain therefore commit to "provide each other with transparent and credible information on expected demand and inform each other in a timely manner on delays and subsequent deviations."  Also, they intend to inform each other about down-times, shut-downs and ramp-up of capacity and the impact of all of these.

Contractual requirements

The code of conduct highlights that the automobile industry "can emerge sustainably from this crisis only if all players respect agreed contractual terms, in particular regarding payments, the reception and timely delivery of ordered products, investments, tooling, testing, development and engineering services and inventories created by orders" and that "these terms - including force majeure clauses - should be applied in a pragmatic way". This is intended to avoid unnecessary costs on value chain partners.

Preparing for recovery

The document encourages all players in the industry's value chain to coordinate and prepare for an orderly restarting of production and to bare in mind effects of the crisis on the availability of  components throughout the supply chain.

Fair competition

The code of conduct underlines that "despite the acknowledged need for broad cooperation in the industry, all players in the value chain are fully committed to complying with applicable competition laws." Commercially  sensitive  information ought to be limited  to  partners  of  the  same  value  chain. Where information exchange between competitors is necessary, it is intended to be structured in compliance with applicable competition laws and in accordance with the competition authorities.