Rico Auto, one of the leading automotive component suppliers in India, has decided to pull out of a supply agreement with Ford. Rico has decided the supply agreement is unprofitable and prefers to pay $US2 million as a settlement amount to Ford over the next two years, spread over eight instalments.
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Rico is part of Ford’s preferred supplier programme for the carmaker’s global operations. The supplier said that the $2 million is not a penalty but the amount owed as commission to Ford for supplies already made under the programme. The supplier will be able to pay in Indian currency.
It appears that Rico had been suffering losses over the contract for a long time and finally decided to walk away from the contract rather than continuing with it. The long term deal was expected to last 10 years with an increasing value over time – US$12 million this year, US$18 million next year, and expected to scale up to $25 million in years to come.
Rico signed the contract in April 2003 but found the preferential supplier programme to be a squeeze on margins.
Rico Auto manufacturers around 200 auto components including some critical engine and transmission parts, with a focus on exports.
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By GlobalDataDeepesh Rathore / Tilak Swarup
