VW supplier dispute worries German government

24 August 2016 18:50 Source:ICIS News

LONDON (ICIS)--Germany must avoid a repeat of disputes such as the one between car major Volkswagen (VW) and two of its parts suppliers, the head of the government of VW’s home state of Lower Saxony said in a webcast media briefing on Wednesday.

Six VW plants in Germany, affecting 28,000 workers, saw production disrupted this month after two suppliers ceased delivering parts needed for gearboxes and seats amid a contract dispute with VW.

Because of just-in-time logistics, ripple effects hit VW’s supply chains, causing concerns in the polybutylene terephthalate (PBT) and other upstream markets.

The dispute was settled on Tuesday and the suppliers resumed deliveries, but it remains unclear when the car plants will be back at normal production rates.

Lower Saxony’s minister president Stephan Weil said that a Germany could not afford such disputes to become a precedent, but rather needed to avoid repeating them in the future, given the impacts on the country's economy.

With the division of labour and complex supply chains in the automotive sector, the disruptions at VW could have quickly affected many other firms and jobs, with far-reaching consequences for the economy, he said.

Weil also shed light on the nature of the dispute on which neither VW nor the suppliers commented. Lower Saxony is a stakeholder of VW and Weil, in his role as a member of VW’s supervisory board, also speaks for the company. 

He said that the dispute was triggered after VW and one of the suppliers could not agree on the amount of compensation VW should pay after it cancelled a contract.

However, that contract dispute was a separate matter, and it was not justifiable for the car parts firm to stop deliveries under existing contracts to exert pressure on VW, he said.

He added that in the car industry, car makers and their supplier were "playing hardball" in their negotiations, "nobody can deny that".

Nevertheless, the car parts firms should have left it to the courts to decide the dispute, he insisted.

He rejected suggestions that he was biased in favour of VW.

"At the end of the day, this was about 28,000 people who feared for their jobs", he said.

The car parts firm had been seeking to press their case at the expense of the workers, "who really did not deserve this" kind of treatment, he added.

The suppliers, CarTrim and ES Automobilguss (ESA), both belong to Prevent Group, an international Bosnia Herzegovina-based car parts firm.

VW’s relations with its suppliers came under strain last year amid alleged attempts by the car major to extract big cost savings from suppliers following its diesel car emissions scandal.

Additional reporting by Katherine Sweeny

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle. ICIS tracks the movement of petrochemical raw material costs in auto production both globally and regionally with the weighted ICIS Basket of Automotive Petrochemicals (IBAP).

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By Stefan Baumgarten