VW Struggles After Supplier Confrontation

Economy, Featured Jamie Simon
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Volkswagen has failed in an effort to lower costs by extending longer terms to suppliers. Prevent Group a Bosnian owned supplier for the Golf and Passat lines from VW forced a halt in production as the result of a dispute over payment for parts produced by Prevent. The move by VW was expected to reduce the company’s annual costs by $1.28 billion.

Prevent Group cleverly and deftly avoided any delay in response from VW by acting through its German based company Automobilguss. The cessation of parts delivery is estimated to have cost VW $15 million in a compensation deal with Prevent Group. Prevent Group cited the companies concern that their labor force had been footing the bill for the fines Volkswagen paid to the U. S. Environmental Protection Agency that stands at $17.4 billion and is expected to increase.

Prevent Group originally asked for $66 million in compensation for the cancellation of a $566 million order from VW. The agreement was announced on August 23, 2016. The majority of VW suppliers have seen similar cancellations and delayed payments and the situation has reached critical mass with the action from Prevent.

The halt in production and a steady decline in income have put VW in a position to be incapable of competing in the emerging electric car and self-driving car markets. The German government is equally concerned with the welfare of VW as the country owns 20 percent of VW.

Labor leaders and union officials in Germany have added to the woes of VW in refusing to accept the planned reduction of work force and in demanding compensation for the lost wages caused by the payment problem VW had with Prevent. All suppliers for VW have voiced similar concerns about their German work force.