VW Reaches Deal With Suppliers, Heading Off Production Crisis

VW reaches deal with suppliers, heading off production crisis

FRANKFURT, (Pakistan Point News - APP - 23th August, 2016) - Troubled German car giant Volkswagen said Tuesday it had reached a deal with suppliers to resume deliveries after a stoppage that forced the group to halt production at several plants. "The affected sites are preparing step-by-step to resume production," VW said in a statement. VW and suppliers Cartrim and ES Guss -- which make seat covers and gearbox parts -- had been locked in a dispute over the component makers' decision to halt deliveries.

The car giant obtained court injunctions ordering the two suppliers to resume delivery in early August. But they refused to comply and challenged that in a court appeal, arguing that VW had cancelled future contracts without providing adequate compensation. VW said both sides had finally reached an agreement on Tuesday to resume deliveries, after a series of negotiations over the last days. The parties have agreed to keep details of the agreement secret, the group said.

The deal came a day after VW warned that it would have to cut shifts for around 28,000 workers at the six affected plants in Germany. Some had already lost hours since deliveries of the vital parts had been interrupted, with factories hit including those that make the Golf and Passat models, two of VW's flagship models. Analysts at Commerzbank estimated the stoppage could cost the firm 70 million Euros ($79 million) a week.

- Fears for workers - ===================== A spokesman for Volkswagen's works council said workers were glad the "one-sided" halt in deliveries was over. "Our colleagues want to build cars and not sit at home with nothing to do," he said. Federal and state politicians had added pressure on the two sides to reach a deal on Monday, with the economy ministry calling on both sides to find a quick solution -- a rare intervention in a business-to-business spat.

The actions by Prevent, the two suppliers' parent company, "should not be an example for others to learn from," warned Stephan Weil, premier of Lower Saxony state, as he welcomed the deal on Tuesday. Lower Saxony is home to tens of thousands of VW workers at the group's Wolfsburg headquarters and is also a major VW shareholder. Employees of the company "became victims of a conflict that was needlessly fought out on their backs," Weil said.

But Professor Ferdinand Dudenhoeffer of the University of Duisburg-Essen said that "the real reason for this farce is in VW's purchasing system." Purchasing managers at the group had continued their historic pattern of squeezing suppliers on price. Meanwhile, they failed to notice that many such smaller firms were being bought up by larger groups more able to resist pressure from big customers, he said. Neither should Volkswagen have made the elementary mistake of becoming dependent on a single supplier, Dudenhoeffer went on.

Volkswagen, which also owns brands from luxury Audi to lower-end Skoda, is still in the throes of its biggest-ever crisis after it admitted in September 2015 to a massive emissions cheating scandal affecting 11 million diesel engines. It has agreed to pay out $14.7 billion to settle damage claims in the US, although some analysts have estimated the final cost of the affair at $20-30 billion Dollars as further claims roll in. Shares in VW immediately jumped on news of the deal, gaining around 2.2 percent to 122.7 in morning trading in Frankfurt -- outstripping the DAX index's gain of 0.65 percent.