Spat with supplier forces VW to halt factories
VOLKSWAGEN (VW) factories in Germany are grinding to a halt after a supplier took the unprecedented step of cutting off the car maker as the two battle in court and engage in a public war of words about who’s to blame for the impasse.
VW stopped Passat production on Thursday and would halt assembly of its best-selling Golf tomorrow if the conflict isn’t resolved, said people familiar with the matter, who asked not to be identified. VW has officially said the factories producing those models faced slowdowns, as did plants that built chassis, the basic underpinnings of vehicles. The supplier, which builds seat and transmission parts, has called the car maker a bully, prompting VW’s top labour boss to say he’s “furious”.
The hold-up threatens to cut VW’s earnings by as much as € 40 million (R612m) a week – according to Christian Ludwig, an analyst at Bankhaus Lampe – at a time when the car maker is trying to boost sagging profit at its namesake brand by lowering annual spending by € 1 billion. The conflict centres on a contract that VW signed with the supplier, then later cancelled. The parts maker said it wanted VW to pay for the factory alterations it made to provide the services.
“This is the most extreme case of escalation between a supplier and a car maker that I’ve heard of,” said Stefan Bratzel, a director at the Centre of Automotive Management in Germany. “There have been court cases in the past, but not a supplier stopping deliveries during series production.”
The shares fell as much as 2.5 percent and were trading down 1.5 percent as of 4.36pm in Frankfurt on Friday. The stock has declined 10 percent this year, valuing Europe’s biggest car maker at € 62.5bn.
Shares fall
Prevent Group’s Car Trim seat-component division and ES Automobilguss transmission-parts unit suspended deliveries after VW rejected discussions to reimburse the supplier when the new contract was dropped, the parts manufacturer said. The cancelled order involved a € 500m deal with Car Trim that was scheduled to start next year, said a person briefed on the supplier’s business, who asked not to be named.
A German court last week ordered the suppliers to resume deliveries, and an appeal in one of the cases has been set for August 31. VW in the meantime has asked the court to fine the suppliers and allow the car maker to go to their factories and load up the parts on its own, the court in Braunschweig said. The parts makers have until next week to respond, and the court will decide then on VW’s request, according to the release.
“VW’s treatment of suppliers is in no way acceptable and can leave every small provider in ruins,” ES Automobilguss executive Alexander Gerstung said. ES Automobilguss said VW was trying to “exploit” its dominant market position to squeeze suppliers.
Christoph Adomat, a VW spokesman, did not respond to requests seeking comment.
The factory that builds the mid-sized Passat sedan and wagon in Emden has a daily production capacity of 1 250 cars, while Wolfsburg, which makes the Golf as well as the Tiguan sport utility vehicle and Touran mini-van, can produce 3 800. About 80 percent of the 9 000 employees at Emden were on shortened work hours, VW said. – Bloomberg