An employee fits the front grill to a Volkswagen e-Golf electric automobile on the assembly line inside the Volkswagen AG (VW) factory in Wolfsburg, Germany, on Friday, May 20, 2016. Volkswagen AG agreed to raise German workers' pay after labor leaders vowed that employees wont foot the multi-billion-euro bill to resolve its diesel-emissions scandal. Photographer: Krisztian Bocsi/Bloomberg
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Volkswagen has withheld a €385,000 payment to a small supplier, allegedly over a €76.35 discrepancy, as a dispute heats up that threatens to halt production at its Wolfsburg headquarters this week.

Europe’s largest carmaker by sales confirmed that production of the Golf and Passat models at four plants, including its headquarters, will be affected by the refusal of two component suppliers — CarTrim and ES Automobilguss — to deliver parts the carmaker needs to build its cars.

Because of a lack of seat parts at its assembly plant in Emden and a lack of gear boxes at its plant in Kassel, production had to be reduced on Thursday, creating a ripple effect in Zwickau and Wolfsburg, where the Golf is assembled, VW said on Sunday.

If VW shuts down its Wolfsburg plant for a week, which produced 815,000 cars last year, the lost gross profit would be about €100m, according to UBS analysts.

VW said negotiations to resume deliveries went late into the night on Friday and will resume Monday. VW plans to take further legal action if deliveries do not resume.

A person familiar with the disputes said they began when CarTrim, a car parts supplier, asked for €58m in compensation because it had hired people, ordered equipment and adjusted machines to execute a €500m order that VW cancelled without adequate explanation.

Another person familiar with the dispute said VW cancelled the order because of “quality reasons”. The carmaker agreed to compensate CarTrim, this person said, but when a claim was presented to VW it contained “a catalogue of items” that were “not understandable”, and so the claim was rejected.

CarTrim and ESA, a gearbox component supplier, are independent companies, but both were acquired by Prevent Group in May and November, respectively. Both are low-margin businesses that profit from high-volume sales.

As a result of the VW dispute, CarTrim, which has fewer than 1,000 employees, experienced a shortage of liquidity. ESA stepped in, offering CarTrim cash to survive and ensnaring it in the conflict.

On August 1, as negotiations with VW were ongoing, CarTrim withheld deliveries to VW. On August 4, ESA followed suit, two people briefed on the issue said.

VW took the matter to a regional court in Braunschweig. On August 9, the court ordered both companies to deliver components to VW “on demand”, but the suppliers have since objected and said the “scope” of the order is in dispute. A hearing on whether the companies must resume delivering supplies is scheduled for August 31.

Tension escalated last week when a VW component plant in Dalian, China, declined to pay ESA a July bill for €385,474.68 because it was, allegedly, €76.35 off — because of an administrative error — according to documents seen by the FT.

The Chinese plant cited local contract laws to say that it cannot pay a bill unless it conforms to the contract and told ESA this could take some time to fix. ESA responded that it was willing to accept €76.35 less until the minor problem was resolved, and warned VW would be in arrears — and subject to penalty interest rates — if the bill was not paid by August 25.

Alexander Gerstung, executive vice-president of ESA, on Friday called VW’s problems “homemade” and accused it of trying to shift its own problems down the supply chain.

VW typically orders parts using the “just-in-time” method, meaning that it only orders parts when it needs them. Disruptions can therefore have immediate impact.

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