Most of VW’s German operations come to a grinding halt due to a shortage of parts

With VW cancelling a contract, its two suppliers CarTrim and ES Automobilguss had to suffer heavy losses running into tens of millions. They are wanting to be compensated for the same. If VW were to allow these losses to be adjusted against future receivables, it need not lose hundreds of millions a day due to a halt in the production at its plants.

In further signs of trouble for Europe’s biggest car manufacturer, Volkswagen has reported production delays at more than half of its German plants arising out of issues with two of its leading suppliers.

These delays could add tens of millions of euros in VW’s production costs.

On Monday, with VW halting the production at ten of its German plants, 28,000 workers were affected. The production of its top selling Passat and Golf models have been affected due to a shortage of parts for the car’s emission, engine and gearboxes.

With the company focusing on the multitudinous threats posed from its diesel emission scandal, this new supplier conflict has emerged as a new threat to VW’s profitability.

As per UBS’s estimate, a halt in the production in its Wolfsburg headquarters is likely to result in a loss of around $113 million (100 million euros). This could also have cascading effect on other suppliers as well.

“Production at several Volkswagen plants has been interrupted as a result of a halt in component deliveries by external suppliers,” said VW in a statement.

VW has so far not succeeded in forcing CarTim, to supply seats and ES Automobilguss, which produces cast iron parts needed to make gearboxes, to resume deliveries.

The crux of the matter is that with Volkswagen cancelling a contract, local suppliers are wanting to be compensated for lost revenues which runs into tens of millions of euros.

VW is in the process of resolving the matter and is engaging in high-level talks with the suppliers. From threatening to the imposition of fines and seizures of missing parts, VW is making sure all its legal options are used, in order to compel the suppliers to resume the deliveries.

Its methods have so far not created much of an impact: while Car Trim has so far ignored the injunction that VW obtained and a regional court in Braunschweig is set to consider a potential injunction against ES Automobilguss on Aug. 31.

Critics are asking for clarification over VW’s over-reliance on single suppliers.

“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.”

Despite the on-going conflict, VW’s shares held on to their positions and slipped by just 0.5% to 119.35 euros as of 1226 GMT.

 ($1 = 0.8858 euros)

Categories: Economy & Finance, Entrepreneurship, HR & Organization, Regulations & Legal, Strategy


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