VW, suppliers struggle to resolve dispute in marathon talks
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Volkswagen and two of its auto parts suppliers were pushing to resolve a contract dispute early on Tuesday, spokespeople said, but had no progress to report despite 17 hours of talks as the conflict threatens to cost the carmaker thousands of vehicles in lost output this week.
Top-level negotiations between VW and the two Prevent DEV group suppliers that began at about 1100 GMT (0700 ET) on Monday and continued through the night failed to yield a breakthrough, spokespeople for VW and the suppliers said. But the two sides are continuing to seek a solution, they said, without elaborating.
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, due to the Wolfsburg-based suppliers’ refusal to deliver products like seat covers and gearbox parts.
VW’s supplier conflict poses a threat to the company’s profitability as it seeks to recover following its diesel emissions test cheating scandal.
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.
CarTrim, which makes seats, and ES Automobilguss, which produces cast iron parts needed to make gearboxes, are seeking compensation after saying they faced lost revenue running into tens of millions of euros after VW canceled a contract.
Europe’s largest automaker has been trying to force the two companies to resume deliveries, suggesting they could face fines or even seizure of missing parts.
“A global player has based its entire production chain on a mid-sized company,”
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.”
Faced with billions of euros of costs from its emissions scandal, VW has indicated it would seek price cuts from its suppliers.
While the disruption may keep workers at home, there could be a silver lining for VW in limiting Golf output. The automaker had already canceled 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.
Questions & Answers
Q.Which specific components are affected by the suppliers' refusal to deliver parts?
Which specific components are affected by the suppliers' refusal to deliver parts?
The dispute involves seat covers and gearbox parts. These are provided by Prevent DEV group suppliers, CarTrim (seats) and ES Automobilguss (cast iron parts for gearboxes), leading to production halts for several VW models and components.
Q.What is the estimated financial impact of a one-week production halt for Volkswagen?
What is the estimated financial impact of a one-week production halt for Volkswagen?
Analysts at UBS estimate that a one-week production halt at VW’s Wolfsburg headquarters could lead to approximately 100 million euros ($113 million) in lost gross profit. This could also have wider effects on other suppliers.
Q.Why are the suppliers, CarTrim and ES Automobilguss, seeking compensation from Volkswagen?
Why are the suppliers, CarTrim and ES Automobilguss, seeking compensation from Volkswagen?
The suppliers are seeking compensation because they faced lost revenue, reportedly tens of millions of euros, after Volkswagen cancelled a contract. This cancellation is the basis of their current demands.
Q.How has Volkswagen responded to the suppliers' refusal to deliver parts?
How has Volkswagen responded to the suppliers' refusal to deliver parts?
Volkswagen has attempted to compel the two companies to resume deliveries. They have suggested potential fines or even the seizure of the missing parts as consequences for the suppliers' actions.