VW production shutdown hits 27,000 workers at six plants amid row

Volkswagen on Monday said it faced production delays at six plants including its main Wolfsburg factory following a dispute between Europe’s largest car maker and two of its suppliers.

VW said it was preparing for shortened working hours for at least 27,700 staff.

The company has restarted talks with one supplier after the unprecedented dispute.

The car maker idled parts of six vehicle assembly plants on Monday, halting work on the Golf along with the Passat, a spokesman for the German firm said. Work on the Passat saloon and estate stopped on Thursday, and the court battle has slowed output at two plants that make chassis.

Negotiations with the supplier of seat and transmission parts will resume later today, the spokesman said. Prevent Group’s Car Trim seat-component division and ES Automobilguss transmission-parts unit suspended deliveries when Volkswagen refused to reimburse the suppliers after dropping a contract. The parts makers had demanded compensation of €58 million (Dh240.5m), the German newspaper Sueddeutsche Zeitung reported on Sunday.

“At least the negotiators are at the table again today,” Olaf Lies, a Volkswagen supervisory board member and economy minister of the state of Lower Saxony, where the carmaker is based, said on Monday. “It will not only be about the question of the current contract, which has now been rescinded, but it will probably also be about the question of how the next months and years will look.”

The production stop at VW’s site in Wolfsburg could cost as much as €100m a week, UBS analysts calculated. The threat to earnings comes as the car maker seeks to boost sagging profit at its namesake brand by lowering annual spending by €1 billion. The supplier last week said Volkswagen is shifting its problems to suppliers and “exploiting” its dominant position in the market.

The order cancelled by VW involved a €500m deal with Car Trim that was scheduled to start next year, a person familiar with the matter said. The parts maker said it wants the car manufacturer to pay for the plant alterations it made to provide the services.

The conflict highlights the degree to which a parts maker can disrupt output as car builders rely increasingly on suppliers to produce a large portion of their vehicles while squeezing them to cut prices. Volkswagen, like most car makers, works on a just-in-time manufacturing principle, meaning its parts are delivered directly to the assembly line without being stored in a warehouse first. While that lowers costs, it also means that when there is a disruption from a supplier, it quickly ripples through the production chain.

Volkswagen stock has declined 10 per cent this year, compared with a 1.9 per cent drop in Germany’s benchmark DAX Index.

VW is under pressure to reduce costs as it grapples with lawsuits and regulatory investigations after disclosing last September that 11 million diesel-powered cars were equipped with software designed to cheat on emissions tests. It has set aside €18bn to cover worldwide costs related to the scandal.

Volkswagen’s works council head Bernd Osterloh said on Friday that the suppliers are being “reckless and asocial” in their disregard for workers by stopping the deliveries. VW said workers producing the Passat will be on shortened work hours until Wednesday, while Golf production will be interrupted for a week, the spokesman said.

A German court has ordered the supplier 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 supplier and let the car maker go to the factories and load up the parts on its own, the court in Braunschweig said last week. The parts maker has until this week to respond, and the court will decide then on VW’s request, according to the release.


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