Short-term cancellations of delivery call-offs by OEM and reduced call-off volumes: What rights do suppliers have and what measures should they take now?

To cushion their own losses, almost all car manufacturers have been temporarily closing their production facilities in recent weeks and months and cancelling at short notice delivery call-offs previously placed with the supplier. These cancellations usually occur only a few days before the scheduled delivery and have significant consequences for suppliers: empty runs, full supplier warehouses and the incurrence of substantial additional costs for storage and logistics as well as additional labour costs. Furthermore, the reduced call-off volumes result in considerable financial losses. Damages in the millions are not uncommon. The volatile call-off practice of car manufacturers is in particular caused by supply shortages in the raw materials and semiconductor sectors - and now also in the area of cable harnesses - leading to significant fluctuations in demand. Against this background, manufacturers sometimes resume production within a few days due to short-term material deliveries and do not allow suppliers adequate lead time. This often results in a short-term and significant increase in delivery call-offs or in the resumption of already cancelled call-offs by the manufacturer. The call-off behavior of manufacturers has simply become unforeseeable.

Due to the lack of predictability in the call-off practice of car manufacturers, many suppliers are currently facing the following (legal) questions in in their day-to-day business:

• Does the car manufacturer have a purchasing obligation despite the cancellation of delivery call-offs?
• Is there an obligation for the supplier to deliver called-off volumes, if the manufacturer reinstates or increases delivery call-offs at short notice?
• What should suppliers consider in the event of short-term cancellations or changes to delivery call-offs?

Does the car manufacturer have a purchasing obligation despite the cancellation of delivery call-offs?

There is no general answer to the question of whether manufacturers are obliged to accept certain delivery quantities from the supplier. Rather, this question depends on the specific content of the delivery call-offs as well as the other contractual arrangements between the car manufacturer and the supplier. Even if the delivery call-offs and standard contracts of car manufacturers regularly do not provide for any explicit call-off and purchasing obligations, this does not mean that suppliers' hands are necessarily tied. Firstly, a purchase obligation may to a certain extent derive from statutory regulations. And secondly, the customer's standard contracts often contain provisions on material release periods, from which a certain purchase obligation on the part of the manufacturer can also arise.

However, a potential purchasing and purchasing obligation of the car manufacturer also implies that he has no cancellation right meaning that the car manufacturer is not entitled to withdraw from the contract with the supplier.  On the one hand, such a cancellation right may arise - depending on the case - from contractual provisions (e.g. force majeure clause or special cancellation clauses). On the other hand, some car manufacturers also refer to statutory regulations. However, there is no one-size-fits-all approach - as common OEM statements may suggest- and the requirements for a cancellation of delivery call-offs must be examined on a case-by-case basis.

If the manufacturer cancels delivery call-offs or refuses to accept deliveries even though he is not entitled to do so, the supplier may also be entitled to claims damages.

Is there an obligation for the supplier to deliver called-off volumes, if the manufacturer reinstates or increases delivery call-offs at short notice?

Due to fluctuations in demand and short-term increases in delivery call-offs, suppliers are also faced with the question of whether the supplier is obligated to deliver the called-off volumes.

The answer to this question also decisively depends on the respective contents of the contractual relations between car manufacturer and supplier. Although an obligation to deliver will often arise from the contractual provisions, this does not mean that this obligation is unlimited. Furthermore, suppliers may also be entitled to various instruments to achieve an adjustment of the contract or a release from their delivery obligation.

What should suppliers consider in the event of short-term cancellations or changes to delivery call-offs?

Since the current situation in the automotive supply chain is not likely to change in the near future, we recommend that suppliers - if they have not already done so - take preventive measures to be able to react quickly to changes at short notice if necessary. In this context, the following steps are particularly useful:

Detailed contract review

Depending on the contractual situation, the supplier has various options for reacting to the car manufacturer's call-off practice. Potential reactions include, for example, a formal objection, the termination of supply contracts, the assertion of claims for damages and/or the assertion of various price adjustment rights. However, in order to be able to fully assess the prospects of success of these options, it is essential to examine the contractual situation in detail.

Documentation and communication of incurred damages

In addition, suppliers should keep detailed records of the damage caused by the car manufacturer's call-off behavior right from the start. This facilitates both negotiations with the customer about any compensation payments and (potential) assertion of any claims for damages in court. It is also important that the supplier immediately communicates any damages incurred to the car manufacturer.

Reject new call-off practice of manufacturers

Suppliers should generally object comprehensively to the new call-off practice. In addition, they should reserve the right to assert claims for damages.

Revision of General Terms and Conditions of Sale

Finally, suppliers should review their own terms and conditions of sale and, if necessary, adapt them to the car manufacturers' changed call-off practices.