VW has restarted production of its new electric ID.3 car © HENDRIK SCHMIDT/POOL/AFP via Getty Images
VW has restarted production of its new electric ID.3 car © HENDRIK SCHMIDT/POOL/AFP via Getty Images

VW faces higher prices from suppliers

Volkswagen says it is facing higher prices from suppliers as a result of the coronavirus outbreak.

VW said suppliers were geared up for large volumes but because of much-reduced car production, demand had dropped while overhead costs remained.

Stefan Sommer, VW’s board member for procurement, told the Financial Times: “Suppliers invested in manufacturing facilities for large volumes. Now there are depreciations, while overhead costs remain and they can’t be reduced overnight.

“Everyone will have to bear the same costs, not only our suppliers, but also VW itself.

“If we continue to see lower volumes, parts will be more expensive.”

Sommer said the cost of sourcing parts would “rise in the classic value chain”, though he said it was too soon to say if production costs would be permanently higher.

VW, which is gradually restarting production, said sales in the first quarter of 2020 fell 1.9% to €19bn, with operating profit down 47.7% to €481m, compared to the same period last year.

VW said it saw challenges “especially associated with restarting production, specifically with regard to stable supply chains and protecting the health of our staff”.

Alexander Seitz, CFO of VW, said: “The Volkswagen brand was taking an extremely resolute approach to costs even before Covid-19 appeared. We will be reinforcing this policy with further measures to enhance efficiency and productivity. Rigorous discipline with regard to expenditure and costs is more important than ever in the current situation.”

VW is continuing to integrate production plants into its Volkswagen Industrial Cloud, which uses the internet of things to collect and organise data, and it is expected to produce costs savings of “several billion euros” once all 124 plants are connected.

The Society of Motor Manufacturers and Traders said in April new car registrations in the UK plummeted 97.3% to just 4,321 compared to the same period in 2019. There were similar drops in France (down 88.8%) and Italy (down 97.5%).

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