“Right now, there is no specific joint development project going on with Volkswagen,” Suzuki Executive Vice President Yasuhito Harayama told reporters who came to Suzuki’s headquarters in Hamamatsu, Japan, to meet four executive vice presidents of Suzuki. Come to think of it, there had been no progress over the past 18 months in the much feted partnership between Suzuki and Volkswagen, Harayama said.
The man who just cut deep in the fraying strands of the tie-up between Volkswagen and Suzuki would have all reason to say everything is fine. Harayama is a former bureaucrat at Japan’s economy and trade ministry who was hired by Suzuki two years ago. He is in charge of relations with Volkswagen. It is not in his interest to admit defeat.
According to comments made by Harayama to Ran Kim of Reuters, one of the sharpest reporters on the Japanese auto beat, relations between Wolfsburg and Hamamatsu turned into a deep freeze when Volkswagen tried to “wield influence over Suzuki’s management.”
“It was made very clear when we tied up with Volkswagen that we did not want to become consolidated, and that we would remain independent,” Harayama said.
Before anything will happen between Suzuki and Volkswagen, the deal needs to be renegotiated.
“We feel we need to return to the starting point, including over the ownership ratio,” Harayama said. “The understanding that we are independent companies, and equal partners, is the absolute prerequisite in pursuing any specific cooperation.”
If Volkswagen is not willing to understand this, then there are other suitors, Harayama said today. He said there are other automakers that were willing to work with Suzuki eye-to-eye, and that Suzuki will continue to pursue operational tie-ups with a broad range of companies and hold back on any projects with Volkswagen until the two can reaffirm their initial understanding.
Financial Times says that “the relationship soured further after VW wrote in its annual report that it could influence the Japanese carmaker’s decision-making process, according to Suzuki.” I cannot find anything to that effect in the annual report. Volkswagen states on page 237 that “Suzuki is classified as an associate.”
These remarks are extremely serious. It is very un-Japanese to run off at the mouth. It is extremely rare to hear a Japanese automaker talk badly in public even about its fiercest competitors. This avalanche of criticism is well-timed and well-orchestrated. Less than two weeks ago, Osamo Suzuki himself wrote a blog in Japan’s Nikkei, in which he complained:
“Lately, people of Volkswagen are telling their shareholders that Volkswagen can largely influence the corporate policy of Suzuki,” and that he feels “somewhat uncomfortable with the statement.”
Perfecting the art of deniable insult by faint praise, Suzuki said:
“According to a recent report by a major German business magazine, Volkswagen seems to gain visibility of developing low-priced cars for emerging markets such as South America and India. I am relieved.”
The faint praise part is over. Today, all gloves came off. Harayama said to Bloomberg:
“We don’t think we would have been able to survive in our minicar business and the emerging markets if Volkswagen had a significant influence on our finances and business management.”
In Wolfsburg, former Opel-Chief Hans Demant, now at Volkswagen responsible for strategic alliances and partnerships, is trying to calm the waters: “Volkswagen and Suzuki are and remain independent,” Demand told Manager Magazin.
Volkswagen may not have enough oil to smooth the waves. JP Morgan already told its clients in India:
“Over the past two years, there has been no significant developments at VW – Suzuki on India. There were some potential discussions earlier on VW sharing Maruti’s vendor base and potentially even using common facilities to manufacture small cars. However, with limited progress so far, it seems that the two partners may follow their independent paths in India.”
Getting access to India where Suzuki is strong and Volkswagen is weak was at the core of the investment into Suzuki. If that is off the table, then there is not enough left to sustain an already very fractured partnership, which Suzuki is not willing to restart until a fresh postnup is written up. Alpha-male Piech and his man Winterkorn are not known to roll over when their leadership role is challenged.
Longtime Wolfsburg watchers know that autocratic Volkswagen can make M&As work as long as it buys the other company lock stock and barrel. Volkswagen’s track record in true cooperative partnerships on the other hand is checkered. The way it looks, the $1.38 billion investment into Suzuki does not bear any fruits except bad press. Already, it is hard to explain as a good investment. According to Reuters, “Suzuki shares have lost ground since the Volkswagen deal, falling as much as a quarter to current levels around 1,827 yen and underperforming the broader market.”