By on July 18, 2011

“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.”


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8 Comments on “The Gloves Are Off: Suzuki 2 – Volkswagen 0...”

  • avatar

    Nothing in here makes me think that Suzuki will become relevant to the North American market anytime soon. Well, not outside of motorcycles, at least. I’m mystified as to why VW thought this was a good idea in the first place. It’s as if Ford decided to buy Mitsubishi motors- what use does a rising star have for a brand that’s essentially dead on its feet anywhere outside of Japan?

    The partnership ends one of two ways. The first way is that Volkswagen scarfs up Suzuki and then uses it as a tool to help crack both India and the Japanese domestic market, a place VW has long wanted to be more relevant in. The second is that Volkswagen cuts Suzuki loose, and then they become the AMC of Japan, churning out niche products for a few more years and then going bankrupt under pressure. If we’re lucky they’ll spin off the bike business first.

    • 0 avatar

      We are living in a global market. The U.S.A. is no longer the navel of the world. A look into the worldwide production ranking of 2009 (the 2010 ranking should be out anytime soon), Suzuki is at #10, bigger than Renault, Daimler. BMW, definitely bigger than Chrysler.

      Suzuki has a virtual lock on India, where it commands half of the market. The survival of the car industry will be decided in the emerging markets which already buy more than half of all cars bought in the world.

  • avatar
    Sammy B

    Valid points, but I don’t think Suzuki is in danger of folding/going AMC of Japan. It may seem that way from the US where it baffles the mind how they remain in business (car-side, not bikes), but in India and Japan, they’re quite healthy. Bertel will have to check the numbers, but I think they still have 50% (possibly even more) market share in India. While they’re behind Toyota, Honda, and Nissan in Japan, I don’t think they’re quite “also-rans” in that market.

    In all honesty, I think Suzuki might be too big for VW to swallow whole.

  • avatar

    Facts (as I understand and interpret them):
    – VW bought some of Suzuki, Suzuki bought some of VW;
    – They formed an alliance, alliance has not done much;
    – In every picture on ttac, Winterkorn seems to have his hand on Suzuki-san’s shoulder or back, no similar pic of Suzuki-san doing same has been seen by this reader;
    – Suzuki’s stock has fallen by 25%, VW’s is presumably rising;
    – Suzuki-san and team are making outrageous statements (when viewed from Japanese-style), VW seems to be trying to counter these with positive statements;
    – Suzuki’s investment in VW has grown, VW’s investment in Suzuki has lost value (or has it? Investment is not always about current share price, sometimes it is about being the first camel to get your nose under the tent) See next 2 points:
    – Investment for short-term considerations: Suzuki’s to get access to VW tech, VW’s to get ideas about winning in India and Japan;
    – Investment for long-term considerations: Suzuki’s to secure access to VW tech, VW’s to secure chance to snap-up Suzuki when Suzuki-san passes from scene;

    Seems to me that Suzuki has begun to realize these last two points, and the family may be reconsidering its long-term relationship to the company … and may have decided that it doesn’t wish to sell-out or hand over the control of the company to VW; this could be the motivator for recently issued statements (which could be magnified by this equation: Fall in Suzuki stock value + rise in VW economic strength = risk VW will start to acquire more stock.)

    One other motivator comes to mind, and that, given the obliqueness and indirect nature of the japanese statement style, so as to often give a westerner a feeling of misdirection, is that it could be that Suzuki felt it would receive much more VW tech than was possible, or that what it received was not able to be applied, or that VW held back, or is not yet in a position to provide a turn-key elemental technology (IDK, but maybe something like electro-drive, or battery IP).

    On this basis, it could be Suzuki is getting nervous with the seeming inter-relationship imbalance between VW’s hunger, strength, and ability to wait it out (Sitzkreig), and Suzuki’s own needs, weaknesses and inability to delay in addressing these. Or given that shareholders often invest for sentimental or patriotic reasons, Suzuki-san’s team’s message may be aimed at trying to quiet nervous family or japanese shareholders.

    So that’s my own two Sens…

    Edited to add a second conclusion.

    • 0 avatar

      On this basis, it could be Suzuki is getting nervous at the imbalance between VW’s hunger, strength, and ability to wait it out (Sitzkreig), and Suzuki’s own needs, weaknesses and inability to delay in addressing these.

      I haven’t followed this, but this sounds about right.

      It isn’t a marriage of equals. It would make sense for the less equal of the two to be worried about the nature of the relationship.

      More to the point, it would seem that VW has more to gain from this than Suzuki. Suzuki has no chance of becoming a major player in North America or Europe, while VW could very well cannibalize or surpass Suzuki in emerging markets.

      Suzuki is a dominant player in India, and has a pretty strong niche in smaller vehicles that would be well suited to emerging markets. Why would they want to share that with VW, which could handily outproduce them and eat them alive?

      • 0 avatar

        Exactly – so why did Suzuki sign up in the first place. They have something like 2.5% of VW whilst VW has 19.9% of Suzuki (shows the relative difference in size between the two). So VW is already well on the way to owning them, or certainly “influencing” them if they can get to 30-40% ownership. Time will tell – VW can afford to sit tight.

    • 0 avatar

      @Robert, generally no arguments with your points — but the Suzuki family no longer has a substantial shareholding in the company. So if Piech decides to take his gloves off and make a hostile offer for Suzuki at an attractive price, the family really wouldn’t be in any position to block the move.

      But I do think VW would rather do this on friendly terms. Even if it takes years to do it.

  • avatar

    What does Suzuki gain from Volkswagen?

    Just shares?

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