MUNICH -- Volkswagen Group is stopping production of its key Golf hatchback at its main German factory in Wolfsburg as a dispute with two key suppliers escalates, reports said. The automaker is also cutting working hours in three other plants across Germany.
VW said Golf production was being hit because supplier ES Automobilguss has stopped delivering cast iron parts needed to make gearboxes. Car Trim, a sister company of ES Automobilguss, stopped deliveries of seat covers earlier this month. Both firms are part of Wolfsburg-based Prevent DEV.
German press reports said the dispute involves a payment disagreement over a joint venture and price cuts demanded by VW, which is seeking to reduce costs amid its diesel emissions scandal.
VW is considering "every legal means at its disposal" to force the suppliers to meet their delivery commitments, multiple German media outlets reported today. This could lead to police accompanying trucks into the parts plants to collect components, the reports said. VW has taken out an interim injunction against the suppliers and a court hearing is scheduled for Aug. 31.
VW will halt Golf production in Wolfsburg for five days next week and will cut working hours for more than 10,000 of the 60,000 staff employed at the factory, its biggest plant, reports said. The plant builds Tiguan SUVs and Touran minivans in addition to the Golf, which is Europe's best-selling car.
Shifts will also be curtailed at VW's gearbox-making facility in Kassel and at a plant in Zwickau that builds Golfs and Passats. VW's factory in Emden, which builds Passats, will be idled from Aug. 18-24, losing production of 6,250 cars after Car Trim stopped deliveries to VW's SiTech subsidiary.
The dispute may reduce earnings by as much as 40 million euros ($45 million) a week, said Christian Ludwig, an analyst at Bankhaus Lampe. The conflict highlights the degree to which a parts-maker can disrupt output as automakers rely increasingly on suppliers to produce a large portion of their vehicles while squeezing them to cut prices.
The decision by the suppliers to stop deliveries is "incomprehensible and a heavy burden for Volkswagen and its employees," the economy minister of VW's home state of Lower Saxony, Olaf Lies, told the state parliament on Thursday.
CarTrim and ES Automobilguss today said the dispute had erupted because the VW had cancelled contracts without giving a reason and had refused to offer compensation, prompting them to stop deliveries. "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.
VW is looking for cost cuts to improve poor profitability at its core VW brand and to help cover the rising costs of its emissions scandal. The automaker plans to reduce annual spending at VW brand by 1 billion euros.
VW sold 261,776 Golfs in Europe in the first half, up 1 percent, according to JATO Dynamics market researchers.
Reuters and Bloomberg contributed to this report