November 11, 2012 8:11 pm

VW buys parts abroad as energy costs bite

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Volkswagen said rising German energy prices had forced it to switch the buying of some parts from domestic to foreign suppliers, with Europe’s largest carmaker warning that the trend could eventually threaten entire manufacturing sectors in the country.

“High energy costs mean Germany is running the risk that some industrial sectors, like foundries or metalworking, will disappear in the medium term,” said Ferdinand Piëch, the company’s chairman. VW had switched to sourcing some products from abroad, he said. “The cost pressure has forced us to find other suppliers in other countries.”

Volkswagen has joined a growing chorus of German companies that have raised the alarm about Europe’s ability to compete – especially as the US pushes towards rebuilding some of its domestic industries, fed by cheap natural gas from shale. The German industry association warned last week that the US would enjoy “an energy-cost advantage compared with Europe and Germany until 2020 at the very least,” as Europe continued to suffer under expensive gas contracts with Russia and Norway.

Germany’s nuclear phase-out was also affecting electricity prices, it said.

Over that period, German gas prices could rise from being three times higher than those in the US to being four times more expensive, the association warned, and electricity prices could end up more than twice as high in Germany as in the US.

While the US’s willingness to tap shale reserves is seen as the key driver of this increasing divergence, German companies fear that plans by Angela Merkel, the chancellor, to phase out nuclear energy by 2020 and replace it with renewable energy sources will add to the upwards pressure from energy costs.

“At Volkswagen we already can feel this [pressure] today,” Mr Piëch told the Bild am Sonntag newspaper. He said the company had reacted to moves to phase out nuclear sources by tapping “cheap hydroelectric” sources, among others. Worries about rising energy costs come at a tricky time for German and other European carmakers. Many are grappling with the need to cut excess plant capacity and jobs.

The European Union recently announced an action plan to bolster the struggling car industry – its first concerted response to a worsening crisis that is hurting some of the continent’s biggest companies and endangering tens of thousands of jobs.

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