On the evening of June 10th to 11th, the entire automotive industry was blown apart by a message - 'Car companies promise payment terms not exceeding 60 days'. Does this sound a bit professional? Simply put, it means that the car company promises the supplier that payment must be made within 60 days after receiving the goods, and there can be no further delays!

At present, many car companies such as GAC, FAW, Dongfeng, Geely, BYD, Chery, Xiaopeng, Ideal, NIO, etc. have expressed their willingness to comply with this regulation. Why do we have to do this? Originally, it was in response to the newly revised "Regulations on Ensuring Payment of Funds to Small and Medium sized Enterprises" by the State Council. This regulation officially came into effect on June 1st, aiming to solve the problem of large enterprises defaulting on payments to small and medium-sized enterprises.

Behind the scenes story: Why do car companies do this?

1. The competition of "internal competition" is too intense!

The competition in the automotive industry is too fierce now, and everyone is fighting a "price war", resulting in car companies selling more but earning less. In the first four months of this year, although automobile production and sales increased, profits decreased by 5.1%, with a profit margin of only 4.1%. In this situation, it is becoming increasingly common for car companies to owe their suppliers money, with an average payment term exceeding 170 days, and some even dragging it out to 240 days! By contrast, most international car companies have payment terms of 50-70 days, while German car companies only have about 40 days.

2. Suppliers are going crazy!

Car companies are delaying payments, putting immense pressure on suppliers. The pressure of advance funding is increasing, cash flow is becoming more and more tight, and even some suppliers almost went bankrupt due to broken funding chains. This phenomenon has attracted the attention of industry leaders, with Wei Jianjun, Chairman of Great Wall Motors, Zhu Huarong, Chairman of Changan Automobile, and He Xiaopeng, Chairman of Xiaopeng Motors, publicly criticizing this "internal competition".

3. The government has taken action!

Faced with this situation, the government cannot sit still. Both the Ministry of Industry and Information Technology and the Ministry of Commerce have clearly stated their intention to rectify this disorderly competition and maintain market order. The China Association of Automobile Manufacturers has also issued an initiative to oppose the "price war" among car companies.

The car company has finally taken action!

Under the call of the government, car companies have expressed their commitment to a payment term of no more than 60 days. This sounds like good news, but there are also many people who are worried: can this really be implemented?

1. Account term commitment ≠ cash received

The car company promises to make payment within 60 days, but in actual operation, financial products such as acceptance bills may be used for payment. Although this payment method can alleviate the financial pressure on car companies, for suppliers, the capital turnover cycle will be longer and they may even face the risk of not receiving payment.

2. Landing is a big problem

Professor Han Zhiyu from Tongji University said that the payment process is actually very complicated, and there may be many problems in the middle. If a car company only promises a 60 day payment term, but delays in acceptance, invoicing, and payment, the supplier will still not receive the money.

Conclusion: Breaking the deadlock is just the first step

The 60 day payment term commitment of car companies is at least a good start, indicating that the automotive industry is starting to 'reverse internal competition'. But to truly solve the problem, the government needs to strengthen supervision, and car companies also need to cooperate sincerely, not just talk about it. I hope this promise is not just a formality, it can truly give the suppliers a sigh of relief!