Volkswagen and suppliers seek to settle dispute in marathon talks

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Berlin | Published: August 23, 2016 3:10:39 PM

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

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

Volkswagen and two of its car parts suppliers appeared to be edging towards 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 were “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 gearboxes, are seeking compensation for lost revenue they say runs into tens of millions of euros after VW cancelled 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 top-selling Golf and Passat models, as well as assembly of engines, gearboxes and emissions systems.

Faced with billions of euros of costs from its emissions scandal, VW has indicated it would 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 added.
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. “That is not only amateurish but also extremely naive.”

Analysts at UBS estimate that a one-week production halt at VW’s Wolfsburg headquarters would result in about 100 million euros ($113 million) in lost gross profit, and could have knock-on effects on other suppliers.

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

In addition, 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.

NiedersachsenMetall, an association of around 300 industrial companies in VW’s home state of Lower Saxony, said a number of suppliers had expressed their concern about the dispute.

“We are calling on the parties involved to come to an agreement as quickly as possible,” NiedersachsenMetall managing director Volker Schmidt said.

While the disruption may keep workers at home, there could be a silver lining for VW in limiting Golf output. The automaker had already cancelled Golf production shifts on October 4-7 and December 19-22 due to falling demand.

VW said the stoppages were part of regular production adjustments.

“Given the slowdown of VW sales (excluding China), the brand certainly needs to slightly trim production levels,” said London-based Evercore ISI analyst Arndt Ellinghorst. ($1 = 0.8829 euros)

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