Parts supplier cuts off VW, closing plants

An e-Golf electric automobile gets polished up in May at a Volkswagen factory in Wolfsburg, Germany. Golf autos are the next to face a production halt in a supplier dispute.
An e-Golf electric automobile gets polished up in May at a Volkswagen factory in Wolfsburg, Germany. Golf autos are the next to face a production halt in a supplier dispute.

Volkswagen AG factories in Germany are grinding to a halt after a supplier cut off the automaker 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 will halt assembly of its best-selling Golf on Monday 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 face slowdowns, as do plants that build chassis, the basic underpinnings of vehicles.

The supplier has essentially called the automaker a bully, prompting VW's top labor boss to respond that he's "furious" and the leader of its home state to say "coercive measures" by a court may be needed to end the conflict.

The production holdup threatens to reduce Volkswagen's earnings by as much as $45 million a week -- according to Christian Ludwig, an analyst at Bankhaus Lampe -- at a time when the carmaker is trying to improve sagging profit at its namesake brand by lowering annual spending by about $1 billion. The conflict centers on a contract VW signed with the supplier, then later canceled. The parts-maker, which builds seat and transmission parts, says it wants the auto manufacturer to pay for the plant alterations it made to provide the services.

"This is the most extreme case of escalation between a supplier and a carmaker that I've heard of," said Stefan Bratzel, a director at the Center of Automotive Management in Bergisch-Gladbach, Germany. "There have been court cases in the past, but not a supplier stopping deliveries during series production."

Volkswagen shares fell 1.5 percent to a two-week low of $135.77 at the close in Frankfurt. The stock has declined 10 percent this year, valuing Europe's biggest carmaker at $72.5 billion.

Prevent Group's Car Trim seat-component division and ES Automobilguss transmission-parts unit suspended deliveries after Volkswagen rejected discussions to reimburse the supplier when the new contract was dropped, the parts manufacturer said in a statement. The canceled order involved a $566 million 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 discussing the legal case.

A German court last week ordered the suppliers to resume deliveries, and an appeal in one of the cases has been set for Aug. 31. VW, in the meantime, has asked the court to fine the suppliers and allow the automaker to go to their factories and load up the parts on its own, the court in Braunschweig said in a statement. The parts-makers have until next week to respond, and the court will decide then on VW's request, according to the release.

Christoph Adomat, a VW spokesman, didn't respond to phone calls and emails Friday seeking comment.

"VW's treatment of suppliers is in no way acceptable and can leave every small provider in ruins," Alexander Gerstung, an ES Automobilguss executive, said in the supplier's statement. ES Automobilguss said VW was trying to "exploit" its dominant market position to squeeze suppliers.

Stephan Weil, the prime minister of the German state of Lower Saxony, told reporters that the suppliers must resume deliveries "very quickly" and that "an amicable settlement would be preferable, but if that isn't possible, coercive measures will surely have to be applied," citing judicial remedies available in such disputes. The state is Volkswagen's second-biggest voting shareholder, and Weil sits on its supervisory board.

The factory in Emden that builds the mid-sized Passat sedan and wagon has a daily production capacity of 1,250 cars. Wolfsburg, which makes the Golf as well as the Tiguan sport utility vehicle and Touran minivan, can produce 3,800 vehicles. About 80 percent of the 9,000 employees at Emden are on shortened work hours, VW said this week. The automaker assembles chassis in Zwickau and Braunschweig.

The suppliers' move is a "rotten, infuriating game," Bernd Osterloh, VW's top labor representative and also a member of its supervisory board, said in an interview with the Bild newspaper. "When businesses put burdens on the backs of the employees, it's reckless and asocial, and must be stopped."

Information for this article was contributed by Tony Czuczka and Naomi Kresge of Bloomberg News.

Business on 08/20/2016

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