Ruling Gives Suppliers an Edge in Contracts

The Michigan Supreme Court ruled in MSSC Inc. v. AirBoss Flexible Products Co. that buyers must be explicit in contracts in saying what they intend to buy from a seller, according to Automotive News.

That's good news for contracts between auto suppliers and their customers, which are often intentionally vague, the article noted. Now customers in Michigan must now either:

• State a specific number of parts that they intend to purchase, or
• State what percentage of parts they will buy over the course of the contract.

The ruling in a dispute between Tier 1 and Tier 2 suppliers comes at a time when many auto suppliers grapple with the financial burden of increased costs, erratic vehicle assembly schedules, and labor-related challenges.

The Michigan Supreme Court decision may give suppliers an edge in negotiating with customers. The AirBoss ruling allows suppliers to inform customers they will cease shipping components if they discover that a contract is no longer enforceable. This puts the supplier in a position to ask for a price increase or change contract terms.

Attorneys told Automotive News they believe the decision, while only applicable to Michigan contracts, could have persuasive and influential effects outside the state.

According to Adam Ratliff, a partner at Warner Norcross + Judd, this decision may rebalance the power dynamics between suppliers and customers.

"It's fair to say there's been a trend toward customer-friendly decisions—an assumption that the customer's view of the contract is the prevailing one, primarily driven by the biggest players in the industry—the OEMs and the large Tier 1s," Ratliff told Automotive News.