alliance ends VW Splits from Suzuki

A four-year collaboration between Germany's Volkswagen and Japan's Suzuki has ended after misunderstandings and disagreements about independence. Both carmakers should profit from the split.
Suzuki and its president, Toshihiro Suzuki, will once again stand on their own two feet.

It's the end of a four-year Japanese adventure, and it came at the hands of a London-brokered settlement.

Germany's Volkswagen, the world's largest carmaker in the first half of this year, has agreed terms to end its partnership from Suzuki, Japan’s fourth-largest carmaker.

It ends a collaboration that was once seen as a match made in heaven, designed to share knowledge about small, low-cost cars, but which foundered on differing ideas about just how much independence the Japanese carmaker would maintain from the German giant.

Both companies believe they can now better survive on their own. Suzuki, about one tenth the size of VW, has seen its prospects improve over the past few years. VW, meanwhile, has continued growing to become the world's largest carmaker earlier this year.

The split was not amicable. After four years of tough negotiations, the terms of the split had to be settled by the International Chamber of Commerce in London. Both carmakers have accepted the arbitration panel's terms.

VW will sell back its shares in Suzuki and expects to gain €3.4 billion, or $3.8 billion, a sum which will prove helpful as it works towards building a new low-cost car on its own in the coming years. VW bought a 19.9-percent share in Suzuki for €1.7 billion in 2009; Japan’s carmaker received a 1.5 percent stake in Volkswagen in return.

We won’t just be VW’s twelfth brand, Mr. Winterkorn will call us an equal partner. Osamu Suzuki, Suzuki CEO in 2009

The alliance between the two car makers had once looked promising. VW hoped that the collaboration would lead to access to the Indian market, and help it gain insights about the construction of low-cost autos.

Suzuki, in exchange, hoped for access to the German car maker’s motor technology. But it also expected an equal partnership and a degree of independence – demands that would eventually prove the crux of the misunderstanding.

“We won’t just be VW’s twelfth brand, Mr. Winterkorn will call us an equal partner,” Osamu Suzuki, head of the Japanese company, said at the time, referring to VW chief executive Martin Winterkorn.

 

Suzuki One Tenth of VW-01

 

The wildly-differing expectations of the two carmakers spilled quickly out into the open. Ten months after the initial agreement was made, Toshihiro Suzuki, son of Osamu, spoke of “constructive friction.” This proved to be an understatement.

In spring 2011, Suzuki ordered new diesel motors from Italian carmaker Fiat rather than VW – a move that was seen as an affront to the Germans.

Not long afterwards, Osamu Suzuki aired his frustration in a blog post and threatened to sever ties. He complained that VW managers had told shareholders they would be able to shape Suzuki’s corporate policy to a substantial degree.

Mr. Suzuki said he felt uncomfortable about such declarations. A partnership of equals had been agreed upon, after all. He wrote that Volkswagen may have gained the mistaken impression that Suzuki is under their control, because the firms differ so much in terms of size. “We cannot accept that view,” he said.

If the collaboration were to fail, this wouldn’t be a problem for Suzuki, he said. “We’ve learned more about VW’s technology but we haven’t found anything interesting enough for us to start using right away,” he said.

This view was strengthened by the success of Suzuki’s own motor designs, which proved popular in the low-cost, small-car segment.

Suzuki later took offense when VW entered Italy’s Ducati via its subsidiary Audi, expanding its motorcycle business. It is an area where Suzuki is also strong. For VW, the move was into a different segment as Ducati focuses on high-end motorcycles while Suzuki serves the mass market with lower-cost vehicles, but to the Japanese carmaker it looked as if VW was teaming up with the competition.

Little progress, meanwhile, had been made in the intended focus of the partnership – low-cost, fuel-efficient cars.

Late 2011, Suzuki called on VW to return its shares, but Ferdinand Piëch, then supervisory board chairman of VW, refused. The Japanese carmaker then called for arbitration in London at the International Chamber of Commerce.

The two companies have now agreed on the terms of the separation, confirming them on Sunday in separate statements.

The split isn't necessarily bad for either company. In contrast to 2009, the Japanese company is now growing again and doesn't necessarily need the cash injection from VW.

And for the German carmaker, the income from its sale of the shares comes at a welcome time: VW is looking to build a new low-cost car, which it has developed alone and hopes to bring to market in 2018.

The experience hasn't completely burned VW either. Chief executive Mr. Winterkorn is now in negotiations about production of its new low-cost car with two other joint-venture partners, the Chinese firms FAW and Saic.

 

Winterkorn 007 - Neu 2015-07-03-01 resume WTB 2014

 

Martin Kölling is Handelsblatt's Asia correspondent. Christian Schnell covers the auto industry for Handelsblatt; Markus Fasse is a Handelsblatt editor specialized in the aviation and automobile industries. To contact the authors: [email protected], [email protected][email protected]