Why did LeEco, which raised 16.8 billion yuan, still fight with suppliers who wanted to collect debts?

"LeEco has reached its daily limit, please have a good Chinese New Year."

After LeEco announced that it had received 16 billion yuan in financing from Sunac China, and its stock resumed trading, and reached the daily limit the next day, a large number of LeEco employees and self-media accounts that were not LeEco employees but were more like LeEco employees excitedly posted status updates on WeChat Moments to celebrate. But happiness belonged to LeEco, leaving sadness to the suppliers who continued to demand money in front of the LeEco Ecological Building.

On the day when LeTV's stock price hit the daily limit, the two sides staged a "full-scale fight" in front of the LeEco Eco-Building.

Fight

On the afternoon of the 17th, the reporter learned from supply chain sources that there was a violent conflict between the security guards of the LeEco Eco-Building and the employees of Hongfului, an after-sales repair company of LeEco mobile phones, who were demanding payment.

The conflict ended before we arrived at the LeEco Ecological Building, but the two sides were still in a tense standoff at the scene. In the conflict video, there were about 50 LeEco security guards and Hongfului employees, of which about 10 were tangled together. The situation was out of control for a while, and finally it was quickly calmed down with Hongfului employees shouting "LeEco is beating people".

According to the on-site information, two male employees of Hongfului were injured, and a pregnant female employee fell and was slightly trampled in the chaos. Several debt collection employees and responsible persons told us that this "standing still" activity, which was intended to put pressure on LeTV Mobile, started at 11 a.m. on the 17th and ended at around 3 p.m., when LeTV security guards tried to snatch workers' filming equipment, which led to verbal and physical conflicts. "Previously, some media were chased and beaten by them all over the garden when they filmed at the scene, and they were let go only after deleting the images. This time they thought the person with the camera was still a reporter, so they wanted to stop us from filming." The beaten employee of Hongfului said that the police who arrived after hearing the news took away the people who fought on both sides. After asking both sides to "control their emotions and not use violence," the Hongfului employees and the LeTV security guards who beat people were released.

After the conflict, Hongfului's debt collection employees and LeTV security guards confronted each other in front of the building.

The confrontation and negotiation lasted until 6pm that day. Hongfului told PingWest that unlike previous negotiations, the two sides did not reach any consensus this time, nor did they sign any new repayment plan (in fact, it is understood that the subsequent negotiations held by the two sides on the 18th also ended in failure).

"This is the fifth time we have come to collect the payment. The first four times, we had signed an agreement stating when and how much to repay, but this time there was nothing like that." Several Hongfului employees told PingWest, "But in fact, even if the agreement was signed and the invoice was issued, the payment was never made on the agreed time limit."

The reporter also contacted LeEco Mobile staff on the 18th to inquire about this matter, and the other party replied: "Most of the arrears have been resolved, and a small part is being actively resolved."

It seems that the 16.8 billion yuan carnival has not ended yet, and embarrassing sequelae have appeared: LeEco Mobile did not get the money from Sunac China in this investment, but the announcement that "Sunac sent a supervisor to LeEco Mobile" made people believe that either the two parties had a "drawer agreement" to ensure that LeEco Mobile also received investment, or Jia Yueting cashed out by transferring equity and invested in businesses that urgently needed money, such as automobiles, mobile and sports. Therefore, suppliers came to collect payments as quickly as possible, but LeEco Mobile did not repay as agreed.

18 Months of Nightmare

The experience of supplier Hongfului is a microcosm of the fate of many unlucky suppliers of LeTV Mobile.

As the exclusive after-sales maintenance company of LeTV Mobile, Tianjin Hongfului was established in August 2010. Its factory is located in Beijing Yizhuang Industrial Park. Its first customer was Xiaomi. After LeTV released its mobile phone in 2015, Hongfului began to accept service orders from LeTV Mobile and became the exclusive service provider of LeTV Mobile. "Our production capacity is limited, so we can only choose between LeTV and Xiaomi," a Hongfului manager told PingWest. "In 2015, orders from Xiaomi were shrinking, while orders from LeTV were increasing, so we chose LeTV."

At the beginning, the number of repair orders from LeTV Mobile was only 300-500 units per day, but later the processing capacity stabilized at 1,000-1,200 units. By the end of 2016, Hong Fu Rui had successively processed more than 300,000 repair orders from LeTV Mobile. However, LeTV Mobile was not quick in payment. The longest delay for the monthly settlement was more than 3 months, but Hong Fu Rui did not care too much, thinking that "as long as it can operate normally, it doesn't matter if it is settled later."

The first half of 2016 was the busiest time for Hongfului to receive orders. At this time, the repair factory received a request from LeEco Mobile to "expand production capacity." "LeEco Mobile told us that we could work hard and money was not a problem. We believed it and started to expand production capacity," a Hongfului manager told PingWest. "In the middle of 2016, we increased the original 1,200 square meters of factory to 3,600 square meters, renovated it, and hired people every day. At the peak, we had 200 employees."

Hongfului, which was established nearly six years ago, never expected that its nightmare would begin just then. Just as it was asked by LeTV Mobile to "expand production capacity", LeTV Mobile also began to delay payments on a large scale and for a long time.

While Hongfului was expanding and recruiting new employees, LeEco Mobile was secretly making moves. Since June 2016, orders from LeEco Mobile continued to arrive, but payment was delayed. However, since LeEco Mobile had a "criminal record" of not paying for 3 months, Hongfului didn't take it seriously. "It was difficult for us to pay for normal operations, rent and property management fees every month, and the money was paid by the boss," a Hongfului manager told PingWest, "but by December, the boss had no money either."

LeEco Mobile began to gradually subcontract after-sales repair services to a new repair factory, Chenfeiyan, in September 2016. This was a covert strategy of LeEco Mobile when Hongfului was seriously owed money. "At that time, we were not worried that LeEco Mobile would give some orders to Chenfeiyan," a manager of Hongfului told PingWest, "Only by comparison can we see the quality of our service."

By November, when LeEco was hit by a "capital chain crisis" and a "supply chain crisis", LeEco Mobile had already defaulted on payments to Hongfului for five months, causing Hongfului to stop paying its employees' salaries since October, and unable to pay property fees and rent for the new factory on schedule, and its gate was also sealed by the property. After several rounds of negotiations, LeEco Mobile paid part of the arrears in December, and after the sealed factory gate was opened, LeEco took away all the machines that needed repairs.

"Taking away the machines means that the cooperation between the two parties has completely broken down," said a staff member of Hongfului. But LeTV still refuses to pay the money it owes.

Chen Feiyan, which cooperated with LeTV Mobile, was also unlucky. In the debt crisis that began in November, Chen Feiyan not only encountered the problem of arrears, but also had a backlog of thousands of mobile phones that could not be repaired due to the "waiting for materials" problem (industry terminology, that is, because upstream suppliers did not supply LeTV, the repair factory could not replace parts for the returned mobile phones) - but LeTV Mobile soon repaid the money owed to Chen Feiyan.

"One is a stock market and the other is an incremental market, and the treatment is still different." A supply chain industry insider lamented.

How much money is owed?

After-sales repairs of mobile phones involve insurance issues, so the debt between LeTV Mobile and Hongfului is not a one-way debt, but a triangular debt.

The focus of the dispute between the two parties is the "warranty service fee". The so-called warranty service fee means that LeTV pays for insurance for every new phone shipped out of the factory. Once the phone is damaged during the warranty period, it needs to be returned to the factory for repair by Hongfului, and the insurance company will pay the compensation. The simple relationship is as follows:

LeEco Mobile warranty service relationship diagram before November 2015

"Compared with other brands of mobile phones, LeTV phones have a very high screen breakage rate due to their 'visual borderless' design," said a technician from Hongfului. "Because the screen breakage rate is too high, the insurance company is no longer willing to support us." By November 2015, the "screen breakage insurance" solution had still not been released, resulting in national service outlets no longer accepting and repairing LeTV phones with the original screen breakage insurance plan starting in June 2016. It was around this time that LeTV Mobile asked Hongfului to expand its production capacity to accommodate the "screen breakage insurance" + "insurance within warranty" phones that the national service outlets no longer accepted.

"Because LeEco Mobile told us that the insurance company no longer pays the insurance money, LeEco will bear it." A staff member of Hongfului said, "As the exclusive partner, we have taken on the workload that we should not have undertaken." The relationship of this chain is as follows:

A brief diagram of LeEco's current warranty service relationship

Simply put: after the insurance company stopped paying compensation and the national service outlets refused to repair LeTV phones in the "warranty repair" mode, LeTV transferred all risks to Hongfului, and from beginning to end, it did not pay the insurance money it promised, which is what Hongfului called the "warranty service fee." LeTV Mobile has always maintained a tough stance in front of Hongfului. So far, the unpaid warranty service fees agreed and signed by both parties are 1.5 million yuan.

There are still some "screen insurance" that have not been confirmed, and LeTV also said that it will not default on its debt. "But the 1.5 million yuan that has been acknowledged has been delayed again and again, and the remaining part still involves complex reconciliation. No one can tell exactly how much it is." A manager from Hongfului said, "We just hope to get this 1.5 million yuan as soon as possible so that we can pay our employees and go home for the New Year." As for the "screen insurance", it involves LeTV's after-sales management, the product quality and the insurance company have an unclear relationship, and it involves the interests of the service provider, so it will be a long way to go to solve it.

After LeEco received a strategic investment of 16.8 billion yuan from Sunac China, as a creditor, Hongfului felt that "it's not completely hopeless to resolve the problem." So what will happen if LeEco Mobile pays off all its debts? "Then we have to start all over again." Hongfului's management staff looked helpless. For a long time, they have been LeEco's exclusive mobile phone repair manufacturer, and they also repair some digital products, but the volume is not large. For those amounts that have been acknowledged but not repaid, in addition to debt collection, they can also sue. "They most want us to sue. But the whole process of prosecution, acceptance, debate, judgment... will take at least half a year. By that time, even if we win, the company will be dragged to death and the workers will not be paid." Hongfului's management staff said angrily, "We won't be fooled."

Encouraging suppliers to expand production, stopping payments, and looking for alternative suppliers may be a unique spectacle in the after-sales service of Chinese smartphone manufacturers. However, LeEco Mobile repeatedly defaulted on payments, and even signed an agreement but still did not repay it when it was due, which made everything out of control.

"Even after receiving the money, we have no hope of resuming production. We are heartbroken." An employee of Hongfului told PingWest that of the original 200 employees, only 30 or so are left, and all of them participated in the fifth collection operation on the 17th. Once they receive the last two months' salary, he and most of the employees are ready to look for new job opportunities. At noon that day, he only ate a box lunch in the cold wind, and in the afternoon he scratched the back of his hand and forehead in a scuffle with security guards.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.