Volkswagen Stops Production Over Fight With Supplier

By Modupe Gbadeyanka

Production of Passat by Volkswagen has been halted due to an ongoing battle between the company and one of its suppliers.

This problem has affected Volkswagen AG factories in Germany. The supplier, which VW fails to mention, cuts off the automaker as they fight 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.

Bloomberg said 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 labour 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 40 million euros ($45 million) a week — according to Christian Ludwig, an analyst at Bankhaus Lampe — at a time when the carmaker is trying to boost sagging profit at its namesake brand by lowering annual spending by one billion euros.

The conflict centres on a contract that VW signed with the supplier, then later cancelled.

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 Centre 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 119.90 euros at the close in Frankfurt. The stock has declined 10 percent this year, valuing Europe’s biggest carmaker at 62.4 billion euros.

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 cancelled order involved a 500 million-euro 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 August 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 e-mails Friday seeking comment.