Suppliers Force VW To Yield, Production To Resume

Following marathon talks between Volkswagen and representatives of suppliers, the automaker was able to start ramping up production again.

Following nearly daylong talks in Hamburg, Volkswagen and the suppliers it has been battling have reached an agreement that will turn on the assembly lines at six plants. The automaker, struggling under the escalating impact of the Dieselgate scandal, and two suppliers, CarTrim and ES Automobilguss, have been stalemated in a dispute that forced VW to halt production on Golf and Passat, idling 28,000 employees at six of its 10 German plants yesterday.

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The suppliers, in an effort to halt VW’s arm-twisting, stopped parts deliveries to the automaker. Subsidiaries of the Prevent DEV group, the two suppliers acted out of self-preservation.

Supplier Had To Act

The company said that VW has been attempting to recoup some of its Dieselgate losses by squeezing its suppliers. Prevent DEV told Automotive News Europe that it had to act. They had moved to seek compensation from the automaker after VW cancelled a contract which would have cost them revenues reaching millions of euros.

The supplier action drew support from Germany’s ruling Christian Democrat party. “I think they have an attitude versus their suppliers which is a little bit too tough,” Michael Fuchs, deputy leader, told Bloomberg Television.

The government has been leaning on the parties in the dispute to settle because it is worried about the economy. That worry was voiced by Germany’s economy ministry, who was concerned about the impact of the dispute beyond VW and Prevent. The dispute had threatened difficulties for about 500 other firms that supply parts for Golf. Because VW had cut its buying, their inventories have been growing. “The consequences for the entire supply chain are already considerable today,” Christoph Feldmann, managing director of the German Association of Supply Chain Management, Procurement and Logistics, told Automotive News Europe.

With the settlement, Volkswagen production is expected to resume gradually. There were few details of the settlement which the parties arrived at. Indeed, while they confirmed an agreement had been reached, neither side said anything else. VW indicated the parties had agreed not to disclosed details of the final agreement. New parts deliveries will restart as soon as possible. This will enable production at the factories to restart on an orderly basis.

Issue Has A Plus Side

Interestingly, there’s a plus side to this for Volkswagen. Due to falling sales, VW has already been forced to trim its production schedule by six days in October and December. The added downtime should help them rebalance their production more closely.

“Given the slowdown of VW sales (excluding China), the brand certainly needs to slightly trim production levels,” Arndt Ellinghorst, an analyst for Evercore ISI, told Automotive News Europe. Evercore ISI is headquartered in London.