In addition to the loss of life, the coronavirus is significantly impacting the supply chain in the automotive industry. The increasing spread of the virus in and outside of China has not only shut down plants in China, but will likely lead to the shutdown of assembly lines in the United States, leading to significant economic turmoil.
To excuse such shutdowns, suppliers may wish to invoke contractual force majeure clauses. A force majeure clause is a provision that relieves parties from performing their contractual obligations when certain circumstances beyond their control arise, such as an act of God, war, a natural disaster, strikes, etc. Such clauses typically specify when the clause may be invoked, any notification requirements, and what happens after it is invoked.
Terms and conditions governing the purchase and supply of automotive parts typically include force majeure clauses. While rarely invoked, such clauses are becoming front and center in many customer-supplier relationships due to the outbreak of the coronavirus. To protect themselves from potential financial risk, automotive suppliers should be prepared to analyze and review their force majeure rights and send and receive force majeure letters. For more information, please contact Peter C. Bolton.