Volkswagen Supplier Dispute – Production Halted, VW Sends in the Bailiffs

The current dispute involving Volkswagen and two of its key suppliers looks like going down in the annals of procurement and supplier relationship management history, and not for good reasons.

The reasons for the dispute are still unclear, but it has led to production of Golf cars being suspended for several days in the Wolfsburg plant, which employs 60,000 people.  On Friday, the state court of Lower Saxony ordered the suppliers involved, Car Trim and ES Automobilguss, which are sister companies, to deliver the parts to Volkswagen – or else VW can seize the components themselves. VW can send trucks to the supplier and with the assistance of bailiffs seize the parts it needs to resume production. That's something we have never heard of major companies doing in any case prior to this.

No less than 20,000 VW workers are already working shorter hours or are expected to do so soon. VW says it got a court injunction over a week ago to force resumption of deliveries, but as of Friday it had not been complied with, hence the potential for more drastic action. Neither VW nor Prevent have fully explained the reasons behind the dispute, but reports suggest VW terminated some contracts with one of the firms involved and would not agree to the proposed compensation payments proposed by the supplier.

ES Automobilguss has appealed the Lower Saxony court decision, but will nevertheless be forced to comply with the order or face the invasion of the bailiffs and VW. As “The Local de” website (German news in the English language) reports, “According to Die Welt, ES Automobilguss GmbH is embroiled in a legal dispute with VW and has stopped delivering the cast iron parts needed to make gearboxes. This has led to huge shortages and bottlenecks in the production process. Another supplier, which makes textiles for car seats, had also stopped delivering to VW”.

The textiles referred to there come from Car Trim, which stopped deliveries of seat covers to the Emden VW plant in northern Germany earlier this month. Both of the suppliers involved in the dispute are part of Wolfsburg-based Prevent DEV, although Autommobilguss (“esguss”), has only been part of the group since last November. Somewhat ironically, the esguss website talks about “450 years of uninterrupted production” on its own site in the Mulde valley.

Prevent DEV appears to be privately owned, with Bosnian businessman Nijaz Hastor the man ultimately in charge (we believe). We suspect that a publicly quoted and owned firm would never let a dispute with a giant customer get this far, but privately owned firms can perhaps make riskier decisions or stand up for their position more strongly than those with institutional shareholders.  Prevent is small compared to VW, but this dispute shows that power in the supply chain is not only about size.

Prevent have now claimed that their action is in response to VW terminating contracts. "Because Volkswagen declined to offer compensation, CarTrim and ES Automobilguss were forced to stop deliveries," the companies said in a statement issued through parent company Prevent DEV GmbH.

This is another blow for VW after the emissions scandal; a US settlement of some $15 billion was discussed in a California court over that recently. This latest incident won’t be quite as expensive, but it is hardly good news for the firm. It’s hard to see that this issue can run on for too much longer, and VW say that alongside the legal action, they continue to seek an amicable solution. But it will be fascinating to find out eventually what lies behind the problem; we’re sure that will be revealed at some point.

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