Carmaker dispute Supplier holds Volkswagen’s feet to the fire

A dispute between Volkswagen and a major supplier group has intensified, with threats of supply freezes and 1000-percent price increases for components. In recent years, cost pressure has heightened tensions between carmakers and suppliers.
He can't work without parts.

For the third time in four years, Volkswagen is locked in a bitter dispute with a supplier which manufactures essential engine parts and other components.

Prevent, which is based in Volkswagen’s hometown of Wolfsburg and has 30,000 employees worldwide, has long had a close relationship with the giant carmaker, supplying VW with seat assemblies, transmission parts, engines, brake discs and seat covers. For many years, it was respected for its reliability and competitive pricing. On several occasions, it was named VW Supplier of the Year.

Those days are over. Tensions have spiraled in recent years, with both sides accusing the other of bad faith and aggressive negotiating tactics. Prevent, controlled by Bosnian-born investor Nijaz Hastor and his two sons Kenan and Damir, has become expert at forcing through price increases with threats to paralyze Volkswagen’s production.

In 2015, a Prevent-owned company suddenly stopped delivering Volkswagen parts, demanding massive price hikes. On that occasion, VW is thought to have lost well over €100 million ($120 million).

A year later, Prevent pulled the same trick. Accusing VW of reneging on contracts, the supplier group ordered two subsidiaries to stop supplying parts. With production halted and replacement suppliers hard to find, Volkswagen was forced — through gritted teeth — to agree a compromise deal.

The carmaker set about finding alternative suppliers. But meanwhile, at the beginning of this year, Prevent acquired a small but important parts company, Neue Halberg Guss, a centuries-old engineering firm which delivers cast iron cylinder heads, engine blocks, and crankshafts to many major European automakers.

Without Halberg's engine casings, Volkswagen cars will stop rolling off the production line.

In recent years Halberg filed for bankruptcy and was bought and sold several times. But the company, based in the small western state of Saarland, is one of the few suppliers for which VW still has no easy replacement.

Prevent was no doubt aware of VW’s vulnerability in this corner of its complex supply chain. Without the company’s engine casings, Volkswagen cars will stop rolling off the production line.

As Halberg’s new owners, Prevent began a familiar litany of complaints, saying Volkswagen had abused its position as a major client to impose tougher conditions, to cancel orders at the last minute, and to deliberately misinform suppliers.

A high-level management meeting held in mid-March failed to resolve tensions between the two sides. Volkswagen decided to pull the plug on their relationship with Halberg as quickly as contractually possible.

Prevent responded with familiar tactics. Handelsblatt has seen documents suggesting it has increased what it charges Volkswagen by between 500 and 1000 percent. According to Volkswagen’s calculations, this could increase costs by as much as €150 million. Take or leave it, was Prevent’s message. Nein Danke, said Volkswagen, despite a lack of alternative suppliers.

But this week another factor entered the scene. Prevent has now informed the workforce at Halberg’s two production facilities that their jobs could be at risk because of the VW dispute.

Workers responded angrily to management’s provocation of a long-standing customer. “We’ve known VW as customers for decades, but Prevent has only been here for six months,” said one. Last week, Halberg’s workers held a marathon works meeting, in which staff debated what to do about the crisis and demanded answers from management. Union IG Metall fears Prevent may break up Halberg's businesses and move equipment to other Prevent subsidiaries.

Volkswagen has had its share of labor disputes. But this time it may find itself cheering on labor representatives in a wildcat work rebellion.

Sönke Iwersen leads Handelsblatt team of investigative reporters. Martin Murphy covers the steel, car and defense industries for Handelsblatt. Martin-Werner Buchenau reports from Stuttgart as Handelsblatt's Baden-Württemberg correspondent. To contact the authors: [email protected], [email protected], [email protected]