Major parts supplier cuts 2016 sales forecast on VW cost pressure
Katherine Sale
26-Oct-2015
By Katherine Sweeney and Mark Victory
(adds additional detail throughout)
LONDON (ICIS)–A
major automotive parts producer and Volkswagen (VW) supplier
has adjusted down its sales forecast for 2016 following
pressure from VW for financial support in the wake
of the diesel emissions scandal, a source confirmed on
Monday.
The source said its company has been contacted by
VW asking for financial support in terms of price
reductions.
It said, “Our company has been approached…
[Volkswagen] is saying the industry cannot live without
VW.”
The supplier said because of this, it is now
looking at its own financial projections for 2016, as the
numbers are no longer workable.
“Next year numbers will become lower,” it said,
adding that the company is now looking at how it can
implement cost-cutting to mitigate some of the potential
losses.
Volkswagen had not responded to requests for
comment at the time of publication.
The confirmation comes following a 12 October report by German newspaper Handelsblatt that VW will seek to extract €3bn of cost cuts from its suppliers to help offset costs, along with a broad range of other cuts to marketing, pay, sponsorship and its range of models.
Several sources in the nylon and PMMA market said that their customers had confirmed that VW was seeking to reduce cost prices.
One PMMA producer said, “It is their [VW’s] management issue, they should deal with it.”
A separate supplier supported this, saying, “I think it is unfair to ask the chain to support this issue which they have nothing to do with.”
The news was also met with resistance in the nylon
chain. “Frankly speaking VW can tell us what
they want but it’s just a question of supply and demand. If
they put fake software in their cars, we don’t have to pay
for their mistake, this is clear. As producers we will reduce
prices because of demand and offer but not because of
Volkswagen,” said one producer.
Sources had said that they will only move
prices based on market fundamentals, and not because of
pressure from VW.
“There’s no room in polymer [to reduce prices] – seems a cheap way to tackle some of their [VW’s] cost problem [but] it’s their responsibility not ours,” a nylon compounder said.
VW’s costs from penalties, lawsuits and car recalls may well exceed the estimated $70bn costs of BP’s Deepwater Horizon oil spill disaster in the US, said Christoph Bruns, manager at German investment firm Fondsgesellschaft LOYS, in an analysis he contributed to Handelsblatt.
Bruns calculated that Volkswagen may face a cost of about €2,000 per car for recalling and fixing the 11m affected diesel vehicles, coming to €22bn.
Volkswagen will be recalling 8.5m diesel cars in Europe, including 2.4m cars in Germany, beginning early 2016, the Germany-based car giant said, confirming a recall order by German authorities.
Under the recall, the car giant will have to remove defeat software that allows the cars to pass emissions controls while their actual on-the-road emissions are much higher, and VW will have to take measures to ensure that the cars comply with emissions regulations, the Germany transport minister said.
VW added that outside of the EU, the recalls would be determined by each individual country. Worldwide, about 11m VW diesel cars are affected.
According to motoring publication Autocar, a total of 3.6m of the estimated 11m vehicles affected globally will require hardware changes.
The models requiring hardware upgrades are those featuring the 1.6 litre version of the EA189 turbodiesel engine across the VW, Audi, Skoda and Seat brands.
European models are likely to require new fuel injectors, while US models may need a urea tank added.
Urea tanks are typically composed of non-corrosive plastics such as polyethylene (PE) or polypropylene (PP).
There are an estimated 482,000 US cars affected by the scandal, according to media reports.
Furthermore, the company is facing huge penalties, estimated to come to $18bn (€16bn) in the US alone.
Coupled with this, VW has a high amount of current debt – debt due to expire in the next 12 months – estimated by The Economist at €164bn.
This could cause refinancing problems, especially as the damage to its share price – if sustained – will likely lead to higher borrowing costs, as will the downgrading in VWs credit rating by Standard & Poor’s to A-.
The Volkswagen diesel emissions scandal has the potential to reshape the global petrochemical industry in dramatic and far-reaching ways.
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