Volkswagen (VW) Group has terminated all its supply contracts with the Bosnian supplier Prevent Group, Automotive News reported on 6 April. According to the report, the long-term supply contracts with VW were canceled without the required notice on 21 March, and the automaker refused to accept any of its parts from 22 March onward. The abrupt termination of supply contracts has forced the Bosnian supplier to lay off 90 workers at Prevent Foamtec facility in Stendal, Germany. Prevent claimed its 700 workers at other group companies are either facing reduced working hours or termination. The supplier has termed VW’s action ‘illegal’ and is considering legal actions against the automaker.
VW has termed its decision to cancel all supply contracts with the Bosnian supplier as appropriate. The automaker said it relies on “predictable and trusting cooperation” with suppliers at all times. “Business relationships are regularly examined with the aim of minimizing the negative effects of potential production disruptions in the interests of our customers, employees, dealers and other suppliers,” Automotive News quoted the German automaker as saying.
Significance: In 2016, VW’s dispute with two small-size suppliers – CarTrim and ES Automobilguss – owned by Prevent Group hampered the automaker’s manufacturing operations in Germany and halted production of Golf and Passat models. The two suppliers supply seating covers and cast-iron parts for gearboxes, respectively, to VW. At the heart of the dispute was VW’s cancellation of a seat cover supply contract worth EUR500 million (USD566 million) with CarTrim. Following the contract's cancellation, CarTrim sought compensation of EUR58 million from VW, which the automaker refused. To get compensation from VW, CarTrim’s parent company Prevent held a supply of components not only by CarTrim, but also by its other company ES Automobilguss. To end the deadlock, VW reportedly paid EUR13 million to Prevent and also agreed to partially reinstate the contract cancelled.
