Volkswagen in crisis talks with supplier

Volkswagen has held emergency talks with a supplier in a dispute that has forced the company to halt production of its best-selling Golf and Passat after the parts maker took the unprecedented step of cutting off deliveries of transmission and seat components.

The shutdown widened yesterday to six factories across Germany, impacting 27,700 employees, or about 10% of VW’s domestic workforce.

Commerzbank estimated the stoppage, now in its fifth day, could cut profit by up to €70m a week.

While the carmaker- supplier relationship can be fraught with tension, it’s almost unheard of for a parts maker to simply stop delivering components.

The two sides were meeting to try to resolve the dispute on their own as they also battle with one another in court.

The feud over a contract with German subsidiaries of Bosnia-based Prevent Group risks adding to VW’s woes and undermining efforts to lift sagging sales and profit at its namesake brand.

“We are really surprised that the fight is escalating to a level where production is severely impacted,” Sascha Gommel, a Commerzbank analyst, said in a note to clients.

“The dispute is coming during an inconvenient time for VW”, with its reputation still marred by the emissions-cheating scandal.

Volkswagen shares dropped up to 1% at one stage in Frankfurt trading. The stock has declined 11% this year, valuing the German manufacturer at €62.1bn.

According to Prevent, Volkswagen was seeking to pass on the costs of the crisis by squeezing suppliers, and the parts maker was forced to take a stand to secure its survival.

VW is under pressure to reduce spending 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 the scandal’s costs.

Prevent’s Car Trim seat-component division and ES Automobilguss transmission-parts unit suspended deliveries when Volkswagen refused to reimburse the suppliers for alterations made at their factories in anticipation of a contract that was later dropped.

The parts maker had demanded €58m in compensation, Sueddeutsche Zeitung reported on Sunday. The order cancelled by VW involved a €500m deal with Car Trim that was scheduled to start next year, a source said last week.

VW last week asked a German court to take action against Prevent.