China’s carmakers cut supplier payment cycles amid Beijing’s price war crackdown

Major Chinese carmakers have cut their lengthy supplier payment cycles – previously used to offset costs and stay competitive in the country’s vast auto market – from nearly a year to less than 60 days, a government-backed industry consortium said, following heightened efforts from Beijing to police the cutthroat sector.The China Association of Automobile Manufacturers (CAAM) said in a statement on Thursday that the 17 assemblers it recently investigated took an average of 54 days to pay their supply-chain vendors since June, with four of them taking less than 50 days to settle the payments.The association, which includes as members nearly every Chinese carmaker, did not release the names of the companies, but added that it would keep monitoring the payment status to ensure healthy growth of the automotive sector.The shorter payment cycle, down from about 300 days in the previous three years, resulted from Chinese authorities’ tighter oversight on price competition among the country’s 100-odd car companies last year, analysts said.Previously, Chinese carmakers frequently extended payment cycles to keep funds in reserve, which allowed them to continue their investments into research and development, as well as offset industry-wide price drops as manufacturers sought to gain an edge on their rivals.While this provided them a source of hidden, interest-free debt, it led to cash flow problems for suppliers of components – from batteries for electric vehicles (EVs) to car seats.“The results showed government intervention worked, as the automotive groups feared they could face severe punishment if they failed to operate in compliance with the authorities’ requirements,” said Chen Jinzhu, CEO of consultancy Shanghai Mingliang Auto Service. “Without delayed payments to suppliers, they will not have sufficient cash on hand to sustain discount wars.”