Nobody plays games with Volkswagen: all contracts with the rebellious supplier cancelled

The message from Volkswagen is clear. Nobody plays games with them. Following the supply crisis that led to the shutdown of six of its plants for several days in August 2016, Volkswagen has now cancelled, overnight, all the supply contracts and agreements it had with Grupo Prevent, a Bosnian consortium that until now supplied various parts and components for the German manufacturer’s models.

Despite the time elapsed since the stoppages, the cancellation of the contracts has come abruptly, overnight and without prior warning from the German manufacturer, which is why Grupo Prevent has announced that it is studying legal action against the German manufacturer, since its move, besides causing a sharp loss of jobs and working hours for its workers and factories, goes against “principles of good-faith commercial practice”.

Despite the substantial investments recently made by Grupo Prevent to meet its supply contracts, Volkswagen cancelled them without prior notice and has refused to accept any part or component originating from Prevent. As a result, more than 700 workers at Prevent’s companies have already been affected, and many others will have to change their place of work, as the Bosnian manufacturer is relocating its permanent workers between the various plants of the Prevent group.

The cancellation of the contracts comes in the wake of the conflict that arose in the summer of 2016, when Volkswagen was forced to halt production at six of its factories where it makes the Passat and Golf due to problems with the supply of components. 28,000 workers were then seriously affected by the stoppages on the assembly lines, as some suppliers failed to meet the committed deliveries of certain components, even though they were obliged to do so both by the contract signed with the automotive consortium and by a court ruling from local judges requiring suppliers to fulfil the promised deliveries.

The suppliers of Group Volkswagen complained of the German manufacturer’s abuse of power, accusing it of cancelling contracts without cause and without notice as a consequence of the crisis generated by the manipulation of polluting gas emissions. In fact, two supplier companies, Car Trim and ES Automobilguss, both belonging to the Grupo Prevent, demanded compensation of 58 million euros from Volkswagen for the unilateral termination of the contracts. One of them produced seats for the Golf and the other steel parts for the production of gearboxes.

The courts had already ruled in favour of Volkswagen in 2016

According to the aforementioned suppliers, Volkswagen unilaterally broke a supply contract that was due to begin in 2018, for the fulfilment of which the Grupo Prevent companies claimed to have begun various adaptation works at their facilities to take on the new workloads, workloads that ultimately did not materialise with the cancellation of the contract. For this reason, they proceeded to halt their production and delay the delivery of components to the affected factories as a pressure measure. For its part, Volkswagen argued that the lack of supply related to a contract in force, whereas the suppliers’ complaint was based on a contract not yet in force when the intentional cessation of supply occurred.

The dispute ended up before the German local courts, which ruled in favour of Group Volkswagen’s position and determined that the suppliers should continue sending their parts within the agreed deadlines to the factories of the car manufacturer. Despite this, the executives of Grupo Prevent refused to comply and ended up forcing the temporary closure of six of the group’s factories, affecting the committed vehicle delivery schedules and 28,000 workers in the group, although finally, in compliance with the court ruling, deliveries resumed and normality returned to the affected factories.

However, last December 2017, AutoEuropa, the Volkswagen plant in Setúbal (Portugal), was forced to carry out a new four-day shutdown once again due to delays in parts deliveries, as suppliers failed to keep up with the intense production rhythm established at the plant with the launch of the T-Roc, in addition to the lines dedicated to the SEAT Alhambra and Volkswagen Sharan. And this was the final straw that definitively exhausted Volkswagen’s patience, which did not hesitate to cancel all its relations with the supplier group.

Volkswagen is completely cutting ties with Prevent, even though it has committed around 200 million euros a year to them in parts and would have to bear additional costs to bring in new manufacturers to replace them in producing parts, costs that Grupo Prevent has estimated at around 160 million euros additionally. Prevent had been supplying components to Group Volkswagen for more than 25 years, including seat assemblies, seat covers and castings for transmissions, engines and brake discs.

It now remains to resolve Grupo Prevent’s pertinent claim, which still seeks those initial 58 million euros, an amount it is now reviewing in order to present its corresponding allegation for the unilateral cancellation of the contracts and request compensation that could amount to costs of 500 million euros for Volkswagen if we add to the possible compensation to be claimed the cost of having to set up a supply network again. According to Prevent, the move made by Volkswagen contradicts the “usual belief in good faith” inherent in commercial practice and has led to the dismissal of 90 workers and the reduction of hours for some 700 other workers at the supplier’s German factories.