VW Cuts 28,000 Workers' Hours Over Supply Woes

Aug. 22, 2016
The embattled automaker announced it will halt production at six plants due to supplier dispute.

Embattled auto giant Volkswagen AG (IW1000/7) said on Monday it would halt production at six plants in Germany for several days as a legal dispute with two key suppliers deepened.

Around 27,700 workers would have their work hours slashed by the end of August, in a new headache for the group which is struggling to move past an emissions cheating scandal that is costing billions.

VW had been forced to take the drastic measures at the factories that produce some of its most popular models including Passat sedans and Golf compacts after the two suppliers of gearbox parts and seat covers halted deliveries.

"Although the state court in Brunswick issued temporary injunctions requiring the suppliers to resume deliveries, they so far haven't fulfilled this obligation," the VW statement read.

Instead, the components' manufacturers are appealing the court decision.

VW said it would resume talks with the suppliers on Monday.

While the group "wishes to achieve a result through negotiations," it may also pursue legal means, a spokesman said.

The parts suppliers say that VW broke off several contracts with no advance warning or compensation, leaving them with no choice but to suspend deliveries to protect their own businesses and workforce.

A spokesman for Prevent, the parent company of the two firms, told German business daily Handelsblatt on Friday that VW was imposing "unacceptable conditions" on its suppliers.

Handelsblatt also reported that VW has been seeking concessions from all of its suppliers, amounting to several billion euros.

The battle has also angered Volkswagen worker representatives, who complained that employees are paying for a battle between the manufacturer and its suppliers which they had no role in starting.

Affected factories include Emden, Zwickau, Kassel, Salzgitter, Brunswick, and a key site at the firm's headquarters of Wolfsburg.

Single-Supplier Vulnerability

One car industry expert told AFP that Volkswagen left itself vulnerable as it depended on a single supplier for the critical gearbox casings.

"It should never be the case that a global company has a medium-sized company as its sole supplier," Ferdinand Dudenhoeffer of the University of Duisburg-Essen said.

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.

The revelation slashed the carmaker's share price by 40% -- a drop in market value of 25 billion euros -- in two days.

Chief executive Martin Winterkorn stepped down over the scandal, and prosecutors in the U.S. said in July that his successor, Matthias Mueller, may also have known of cars' failure to meet emissions standards as early as 2006.

VW has had to set aside billions of dollars to settle damage claims from car owners and to retrofit the affected cars.

It secured preliminary approval for a $14.7-billion settlement from a California judge in July.

But several German states are examining legal action to claw back losses to pension schemes and other holders of VW shares.

The company may also be forced to pay out for environmental damages in cases brought by several US states.

Analysts have estimated the final cost of the affair at between 20 and 30 billion euros -- a steep price tag even for a firm with annual sales of around 200 billion.

By Tom Barfield, Copyright Agence France-Presse, 2016

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