VW, suppliers seek to settle dispute in marathon talks as production takes a hit

Volkswagen ( VW) and two of its car parts suppliers appeared to be edging toward a resolution of a contract dispute that has hit output at more than half of its German plants.

After 20 hours of negotiations that continued through the night, a source familiar with the matter said talks are “on the home stretch.” VW and Prevent DEV, the parent company of the two suppliers, declined to comment on Tuesday.

The conflict threatens VW’s profitability as it seeks to recover from its diesel emissions test cheating scandal and could hurt hundreds of other VW suppliers.

CarTrim, which makes seats, and ES Automobilguss, which produces cast iron parts needed to make gear boxes, are seek- ing compensation for lost revenue they said runs into tens of millions of euros after VW canceled a contract.

The dispute affected about 28,000 workers at six of VW’s 10 German factories on Monday when the automaker halted production of the Golf and Passat models, as well as assembly of engines, gear boxes and emissions systems.

Faced with billions of euros of costs from its emissions scandal, VW has indicated it will seek price cuts from its suppliers.

Europe’s largest automaker has been using legal action to try to force the two companies to resume deliveries, suggesting they could face fines or even seizure of missing parts.

Lower Saxony Economy Minister Olaf Lies, a member of VW’s supervisory board, has said the dispute is hitting VW “at the worst possible time.” Whether VW management should face questions for over- reliance on single suppliers needs to be clarified, he noted.

Some industry analysts were also critical of VW.

“A global player has based its entire production chain on a mid- sized company,” said Ferdinand Dudenhoeffer, head of the Center of Automotive Research at the University of Duisburg- Essen.

Analysts at UBS estimate that a oneweek production halt at VW’s Wolfsburg headquarters will mean about 100 million euros ($ 113 million) in lost gross profit and could also affect other suppliers.

Some 500 companies that supply parts for VW’s Golf model are being forced to build up inventories because the carmaker was not buying, according to the German Association of Supply Chain Management, Procurement and Logistics.

VW’s customers face delays in the delivery of new cars, which could prompt them to cancel purchase contracts and switch to other brands.

“The consequences for the entire supply chain are already considerable today,” Christoph Feldmann, managing director of the association, said in a statement.