VW Shutdown Expands to Golf Production as Supplier Feud Deepens

(Bloomberg) -- Volkswagen AG extended a production shutdown to factories making its best-selling Golf compact in an unprecedented dispute with a supplier that has halted deliveries as the two battle in court.

Parts of six vehicle assembly plants idled on Monday, halting work on the Golf along with the Passat, a spokesman for the German automaker said. Work on the Passat sedan and wagon stopped on Thursday, and the dispute has slowed output at two plants that make chassis, the basic underpinnings of vehicles.

Negotiations with the supplier of seat and transmission parts will resume later on Monday, 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 euros ($66 million), German newspaper Sueddeutsche Zeitung reported on Sunday.

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

Order Dispute

The order canceled by VW involved a 500 million-euro deal with Car Trim that was scheduled to start next year, a person familiar with the matter said last week. The parts maker said it wants the auto 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 automakers rely increasingly on suppliers to produce a large portion of their vehicles while squeezing them to cut prices. Volkswagen, like most automakers, 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’s a disruption from a supplier, it quickly ripples through the production chain.

Volkswagen shares dropped 1.5 percent to 119.90 euros at the close on Friday. The stock has declined 10 percent this year, valuing Europe’s biggest automaker at 62.2 billion euros.

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 18 billion euros to cover worldwide costs related to the scandal.

Volkswagen’s works council head Bernd Osterloh told the Bild newspaper 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 Aug. 31. VW in the meantime has asked the court to fine the supplier and let the automaker go to the factories and load up the parts on its own, the court in Braunschweig said in a statement 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.