By on July 29, 2013

Suzuki SX4. Photo courtesy AutoExpress

Suzuki and VW don’t seem ready to officially call it quits just yet. The two companies are still talking, with both sides continuing to see positives in what was to be a partnership on small cars and Suzuki’s domination of emerging markets.

Senior management from both sides, including Osamu Suzuki, are currently in talks to revive the partnership as it could help Suzuki spread their R&D costs over multiple products and give them access to VW technology. Volkswagen wants a greater foothold in India and China, where Suzuki has been wildly successful, a stark contrast to their presence in North America. If talks fail, the courts have some decisions to make.

The situation came to a head two years after the partnership between the two companies was initially formed, with both parties calling the other out for breach of contract. Since then, the matter has been before the courts as Suzuki demanded back VW’s 19.9% share in the Japanese company. Volkswagen is currently Suzuki’s largest shareholder, though the company is controlled by the Suzuki family.

For what it’s worth, talks could go either way. As we reported last year, Osamu Suzuki is a bit of a wild card. When the partnership was active, engineers at the two companies worked quite well with each other. But, Osamu Suzuki and other members of senior management at both companies felt they were getting raw ends of the deal.

A slighted Suzuki went to the press, calling off the partnership before making a phone call to Germany to notify Ferdinand Piech of his decision. The relationship between VW and Suzuki has been rocky ever since.

 

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16 Comments on “Bi-Polar Suzuki Not Sure What To Do With VW...”


  • avatar
    Lorenzo

    I suspect “wild card” Osamu will have to leave the scene before this partnership problem is fully resolved. At 83, he might not be around very long, you might think, but I wouldn’t be surprised if he has another 10-15 years left, or until his son eases him out somehow. That last prospect is very un-Japanese, though.

    • 0 avatar
      th009

      The other possibility is for the board to overrule him. Not very common in Japan, but it does happen.

      The Suzuki family really does not own a substantial stake any more:
      http://www.globalsuzuki.com/ir/stock/stockSituation/index.html

    • 0 avatar
      Mark Stevenson

      I have heard him described by someone else as being “a senile old man” who “doesn’t want to give up power.” He’ll be leaving the throne in a body bag, I expect.

    • 0 avatar
      L'avventura

      This site seems to relegate Osamu Suzuki and the company itself as being “bi-polar” and Osamu being a “wild card”, but the reasons of this failed relationship are rooted in more fundamental business relaties.

      Suzuki wanted VW platforms and technology to compete in mature markets where the company has historically been very weak in (like North America and Europe). Well, that didn’t happen, Suzuki has since retreated from North America and the European automotive market is contracting. Its also found a diesel supplier in Fiat.

      VW wanted Suzuki’s mini-car platform and the massive scale that it offers. Suzuki makes nearly 3 million small cars a year. There is no other company that has that can of volume, and its the key to market share in the emerging market.

      Giving VW its platforms basically makes a fierce competitor for them in their key emerging markets (VW is already a powerhouse in China), and there is little VW offers for Suzuki as its pretty much given up on Western markets. The last thing Suzuki wants is the 800-lb gorilla that is VW stomping into their remaining markets gobbling up market share.

      Further more, Suzuki is profitable and getting more profitable each year (20% jump last year, and 50% jump in India). VW for its part has started building their emerging market minicars as well, while it doesn’t have the volume that Suzuki does, nor have the manufacturing base in the developing world, it has the money and power to go it alone.

      There is little incentive to strike a deal. VW wants Suzuki for emerging markets, and Suzuki doesn’t want more competition in those markets. Its a conflict of interest.

      • 0 avatar
        th009

        Suzuki is basically dependent on the Japanese market (which is doing worse than Europe) and India, selling 1.2M and 1.0M units in the two respectively. Half the domestic volume is Kei vehicles which may be at risk if TPP comes through, and Maruti Suzuki’s market share has been dropping as well (unit sales down 10% this year).

        Beyond those two, there is China with 300K units, but sales have stalled there. Pakistan is 100K with miscellaneous other markets making up the remaining 400K units.

        So I wouldn’t quite say that Suzuki is in a strong position.

        Anyway, the deal was struck, and a contract signed. Osamu Suzuki changed his mind, now either they negotiate or the arbitrator makes a decision. In the meantime, VW is by far Suzuki’s largest shareholder.

        • 0 avatar
          L'avventura

          Suzuki is dependent on India not Japan. India account for 46% of Suzuki’s sales, Japan 24%.

          http://www.alphavn.com/2012/06/26/u-s-also-ran-suzuki-a-leader-in-asia-2/

          As for Japan, kei car sales have actually been growing as ‘normal’ cars sales have actually decreased. Suzuki has been a beneficiary of this shift, which is why its profits have soared (last quarter net profits skyrocketed 80%)

          http://www.livemint.com/Companies/lOWVt2wlsx74KgAMmD680I/Osamu-Suzukis-son-may-join-Maruti-board.html

          Suzuki’s next plan is expanding in ASEAN markets; the next area where large market growth is expected, it just spent $600 million in making a new factory in Indonesia and is building a second car plant in Thailand.

          In fact, Suzuki will be a huge beneficiary of the TPP. Most of its cars aren’t built in Japan but in other TPP regions and the rest of Asia.

          The ‘kei’ tax has already become largely irrelevant and miniscule, which is why the talk of dropping the classification is so frequent. Without kei rules, Japanese manufacturers would be able to better export their minicars as they won’t be bound to silly technical limitations (like size restrictions, hp restrictions and the 660cc restriction).

          Dropping kei-car restrictions mated with the TPP passing would be a huge opportunity for Suzuki to synchronize their Japanese minicars with the rest of Asia.

          As far as the the deal, the deal was for 20% of Suzuki, which has already exchanged hands. VW shared gives little to no control Suzuki, which is the source of the problem. There has never been a deal for any far reaching partnership.

          • 0 avatar
            th009

            The 46% and 24% figures exclude kei cars. Look at Suzuki’s annual report to see the real totals.

            You and I share different perspectives on the impact of TPP and the future of the kei market. There is nothing stopping Suzuki from exporting key cars today, and TPP might significantly shrink the kei market as cars like the 500 and Up! eat into the sales.

            As far as shareholdings go, VW has more shares than the next 7 biggest shareholders put together. Not control, but certainly they would have significant influence if they chose to exercise it.

            http://www.globalsuzuki.com/ir/stock/stockSituation/index.html

          • 0 avatar
            L'avventura

            Osamu Suzuki has already come out in favor of the TPP. He’s also in favor for Japan to sign as many FTA as possible:

            http://business.nikkeibp.co.jp/article/eng/20100927/216389/

            http://www.nytimes.com/2010/11/12/business/global/12yen.html?pagewanted=all&_r=0

            For Suzuki, they want to import South Asian-made cars into Japan. This is why the TPP benefits them, but cars sold in the rest of Asia aren’t kei-spec.

            Exporting Japanese-made kei cars is ridiculous. Minicars sell for cheap, and Japanese labor is expensive. There is no economic sense for Suzuki to sell expensive Japanese made cars for cheap across asia.

            As far as VW control of Suzuki, if they had any control they wouldn’t find themselves in the position they currently are in.

            They obviously aren’t calling the shots. In fact, the entire Suzuki board of directors dissolved their partnership, and their wording is harsh:

            http://www.globalsuzuki.com/globalnews/2011/0912.html

  • avatar
    Lampredi

    Back in September of last year, Ferdinand Piëch was asked why VW was keeping its stake in Suzuki, and he responded that we should “wait and see” and that it’s a “company secret” (see http://www.businessweek.com/news/2012-09-04/volkswagen-s-piech-says-seat-unit-heading-in-right-direction).

    Any clues as to what Piëch might have been talking about? I suppose we might be about to find out…

  • avatar
    J.Emerson

    What amazing technology does VW have that Suzuki can’t live without, exactly? I mean real-world stuff that will actually serve some purpose in the market, not pie-in-the-sky stuff like the XL1 or the Veyron. You can say that they might do platform sharing, but Suzuki doesn’t really need it. They’re big enough to develop their own designs without relying on VW’s castoffs.

    This sounds like nothing more than an attempt by VW to hoover up more crucial developing-world marketshare. Suzuki shouldn’t give that up for vague promises of “technology.”

    • 0 avatar
      th009

      Platforms, engines (though Suzuki went to Fiat for some of these) and purchasing power.

    • 0 avatar
      th009

      Allow me to add a second reply … as far as being big enough to develop its own platforms, Suzuki does build 3M cars. But once you break it out, it splits out something like this:

      - 600K kei cars
      - 700K developed-market cars
      - 1.7M developing-market cars

      Outside the developing markets, 600K or 700K units isn’t enough to do effective platforms today.

      • 0 avatar
        L'avventura

        Their developing world cars and nearly the same as their developed-market cars. We’re talking about near 2.5-3 million cars one small platform (not including cars they make for Nissan, Mazda, Mitsubishi, etc.).

        For instance, the Suzuki Alto in India has a 800cc engine, in Japan due to the kei rules the Alto has a 64hp 660cc turbo. The new ZC/ZD Swifts even share large portion of their platform with their new global platform (which also underpins all their A/B segment cars).

        The very vast majority of what Suzuki makes are small A/B segment cars and their foray into slightly larger cars have been tragic commercial failures (e.g. Kizashi).

        Let’s keep in mind, VW only sells around 700k Polos and 60k Up!s globally in 2012.

        http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2013/03/Y_2012_e.bin.html/binarystorageitem/file/GB+2012_e.pdf

        When it comes to small car sales and volume Suzuki is king. Its their only real niche. In fact, its VW that wants Suzuki’s small car platforms, not only do they have volume, they have supply chains and factories near the countries that they those cars actually sell (VW’s supply chain network in those countries are miniscule).

    • 0 avatar
      Lampredi

      “What amazing technology does VW have that Suzuki can’t live without, exactly?”

      VW’s greatest “asset” by far in that regard is its marketing skills…

    • 0 avatar
      CelticPete

      Platforms are hugely expensive to develop. It would be a huge cost savings to use VW MQB architecture..


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