By on September 14, 2011

Despite saber-rattling, legal threats and affirmations that Volkswagen does not intend to give up its share in Suzuki, Volkswagen started its climbdown. Ferdinand Piech himself signaled that Volkswagen can go it alone. At the Frankfurt Auto Show, Piech said that Volkswagen is “big enough.”  His man Winterkorn quickly fell in step and told Reuters today: “”Suzuki was one option. But we can do it on our own.”

That should be signals enough for everybody at Volkswagen to put the Suzuki saga behind themselves and to concentrate on other pressing business, such as the messy Porsche merger.

Back in Tokyo, The Nikkei [sub] wrote what seems to be Suzuki’s version of the story. Ever since Osamu Suzuki used The Nikkei as the host of its own blog, the Tokyo business paper had the inside track in Hamamatsu.

Quite obviously written with heavy input from Sukuki, The Nikkei’s chronicle of the saga comes to the conclusion that both parties did not receive what they had expected.

Suzuki did not have the money to invest heavily into green technology and electric cars with doubtful payback. Suzuki expected this know-how from Volkswagen.  To its dismay, Suzuki realized that Volkswagen has less green cred than assumed.  The Nikkei writes that a

“factor behind the breakup was Suzuki’s realization that VW did not have much cutting-edge environmental technology to offer. Suzuki’s chief reason for forging an alliance with VW was to get its hands on environmental technology so that it could focus on its strength: low-cost manufacturing.”

“But VW is not so far ahead of its rivals in green technology. In Europe’s auto industry, many key technologies are the intellectual property of Robert Bosch GmbH, the world’s largest maker of autoparts. But even Bosch has been lagging in development of key electric vehicle technologies such as lithium-ion batteries.”

In other words, Suzuki realized that it doesn’t have to sell shares to get the technology. They can just write a purchase order to Bosch.  Or better, talk to Nissan or Toyota in Japanese.

Volkswagen likewise did not get what  it wanted. Namely all of Suzuki. Adding Suzuki’s 2.9 million cars to Volkswagen’s  7.3 million cars sold in 2010 would have propelled Volkswagen over the 10 million unit mark and way ahead of the competition. It would have solved Volkswagen’s problems in India and would have provided Wolfsburg with a solid footing in low cost cars – an art that has been forgotten at Volkswagen, some time in 1980.

Instead of small cars, Volkswagen perfected the art of building large empires. Throughout Volkswagen’s history, VW had taken over other companies in step-by-step fashion:

  • Volkswagen bought 50 percent of Audi in 1964, and the rest a year later.
  • Volkswagen started an alliance with SEAT in 1982, bought 51  percent in 1986, and the rest in 1990.
  • Skoda started as a joint venture  in 1990. A year later, Volkswagen had 30 percent. In 1994, Volkswagen had 60 percent and in 2000, Skoda was wholly owned by Volkswagen
  • The same happened with Scania and MAN, which are now being merged by Volkswagen.

At Volkswagen, it is understood that taking 19.9 percent of another company is just the first step to eventually swallowing it whole. Anybody who has worked at Volkswagen for a while will act, work, and behave under this assumption.

This of course was known by Suzuki. Or it should have been known. Writes The Nikkei [sub]:

“When the two companies announced their tie-up at the end of 2009, Suzuki’s hard-bargaining chairman, Osamu Suzuki, repeatedly stressed it was an equal partnership.”

Suzuki was expecting the kind of loose partnership it had with GM while the General owned  17 percent.

The people at Volkswagen did not get the memo, had received different instructions, or were simply following Volkswagen S.O.P.  The Nikkei continues:

“VW demanded “all kinds of information” from Suzuki, according to an executive at the Japanese carmaker. VW’s attitude provoked complaints among Suzuki employees, who felt their company was being treated as if it were a member of the VW group.”

Already unnerved by Volkswagen personnel that behaved as if VW owns Suzuki, the Japanese had their suspicions confirmed when they opened Volkswagen’s annual report:

“The last straw was VW’s annual report for 2010, which described Suzuki as an important company over which VW has “significant influence” regarding financial and operating policy decisions. VW says it was only following accounting rules, but the move prompted Suzuki to begin looking for ways to dissolve the partnership.”

Of course, a possibly soon unattached Suzuki stirs desires at other makers. When Fiat announced its new diesel engine deal with Suzuki last January, we wrote that this “could possibly raise eyebrows in Wolfsburg.” Sure enough, Volkswagen now claimed – a bit belatedly – that Suzuki and Fiat were caught in flagrante delicto.  Which in turn prompted Suzuki to file for divorce.

Being fingered as the home wrecker, Fiat boss Sergio Marchionne is already trying to turn an affair into a long-term relationship. Marchionne told Reuters today that Suzuki would be an “interesting partner for the Asian market.”  No kidding. Fiat is especially weak in Asia and needs a partner bad. But who says that Suzuki will jump in bed with Marchionne after having narrowly escaped being gang-raped by Piech and his boys?

 

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20 Comments on “Suzuki: Piech Out, Marchionne In?...”


  • avatar
    philadlj

    “who says that Suzuki will jump in bed with Marchionne after having narrowly escaped being gang-raped by Piech and his boys?”

    A heck of a line, BS!
    Great imagery.

    Last week I suggested Marchionne at least make a big public meal of discussions with Suzuki as a proverbial “Italian chin flick” at Piech, who until his recent comments about VW being “big enough”, seemed interested in acquiring Alfa whether Marchionne agreed or not. That would have constituted the classical but far more arcane definition of rape as “abduction”, not violation, from the Latin Raptio.

    • 0 avatar
      Philosophil

      I was going to say something about the language in that quote, but I’m starting to wonder now if BS is just trying to get my goat. Maybe I should just go ahead and ban myself and get it over with…

  • avatar
    mjz

    Never, never underestimate “THE SERGIO”. He has managed to put egg on the face of Herr Piech! So much for VW getting their mitts on Alfa.

    • 0 avatar
      mike978

      Really? Sergio held all the cards in that he owned Alfa. Not difficult to say “no” when you don`t need the money. And I say this as someone who respects what he has done for Fiat so far.

      VW vs Fiat. Which is the most successful? By most measures (profits, volume, brand reputation) VW is. So Piech gets the last laugh (for now).

      • 0 avatar
        mjz

        I think Sergio was really pissed off when Piech kept insisting he was going to buy Alfa, and so he blindsighted Herr P with this deal with Suzuki. Marchionne +1, Piech 0.

      • 0 avatar
        th009

        … and meanwhile at Alfa, Marchionne has delayed four models (Giulia, Spider, 4C and SUV) by a year each, and pushed back the US-market return to 2013.

        I guess that’s +5 for Marchionne, is it?

        (One of the key reasons VW is growing faster than the market at the moment is that they kept investing and launching new models even during the downturn. Marchionne seems to think that’s a bad strategy.)

  • avatar
    mike978

    Bertel, thanks for providing more detail on a fascinating story.

    You write about VW SOP regarding buying into a company as a prelude to buying it all and say “This of course was known by Suzuki. Or it should have been known.” It seems you accept that Suzuki was at least naive if not clueless. Certainly compared to your previous post on this :

    https://www.thetruthaboutcars.com/2011/09/green-form-osamu-suzuki-files-for-divorce/

    It does seem odd that Suzuki went to Fiat for diesel technology when VW is at least equal, and arguably ahead, of Fiat in that technology. It does seem the Japanese broke the agreement.

    The statement “But VW is not so far ahead of its rivals in green technology. In Europe’s auto industry, many key technologies are the intellectual property of Robert Bosch GmbH, the world’s largest maker of autoparts.” still shows that VW was ahead of rivals and therefore a good choice. Did VW ever claim to be streets ahead of Toyota, Honda, Gm etal?

    Also odd that Suzuki got annoyed about the 2010 annual report which correctly, from a legal perspective, stats that VW has significant influence. When you own 19.9% you expect influence. Significant is a subjective word, so it looks like Suzuki didn`t do their homework and wanted to back-out. I wouldn’t counsel them to piss VW off through the media if they want their 19.9% back!

    • 0 avatar

      No, I do not accept that “Suzuki was at least naive if not clueless.” One doesn’t run a car company by being less intelligent than you are. Please don’t put words in my mouth or keyboard.

      I will stop trying to explain to you the difference between 19.9% and 20%.

      • 0 avatar
        Fusion

        The 20% thing isn’t as clear as you make it seem. Its not a legal “border” which when crossed makes a company your associate. IAS clearly state that:

        “A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant influence unless it can be clearly demonstrated otherwise. If the holding is less than 20%, the investor will be presumed not to have significant influence unless such influence can be clearly demonstrated. [IAS 28.6]

        The existence of significant influence by an investor is usually evidenced in one or more of the following ways: [IAS 28.7]

        – representation on the board of directors or equivalent governing body of the investee
        – participation in the policy-making process
        – material transactions between the investor and the investee
        – interchange of managerial personnel
        – provision of essential technical information

        Potential voting rights are a factor to be considered in deciding whether significant influence exists. [IAS 28.9] ”

        I would assume, that several of those bullet points were in fact part of the contractual agreement between VW and Suzuki.

        As a matter of fact, GM still reported their investment into Suzuki as a nonconsolidated affiliate, over which they had the “ability to exert signifi cant infl uence over
        decisions relating to their operating and fi nancial affairs.” in 2006, when they only owned 3.7% of voting rights in Suzuki. Because they still fulfilled several of the other criteria due to their former, higher integration.

        VW themselves stated in their half-year report that they are accounting the Suzuki investment in this way, because of the partnership contracts. If this partnership contract did include the obligation for technical or personell exchanges (etc.) then I’d agree that classifying Suzuki the way they did was the right thing to do when following International Accounting Standards.

      • 0 avatar
        mike978

        Bertel – I am sorry if I misunderstood you writing “Or it should have been known” in response to VW’s SOP (as outlined by yourself). The inference to me at least was that they should have known. You also in response to other posts say wishful thinking can occur. Both lead me to think they acted naively.
        I never questioned their intelligence, but we all know there is a difference between intelligence and street-smarts. As posted below, maybe this was wishful thinking. However that is hardly a more comforting way to arrive at major decisions for a major corporation.

        I also stated 19.9% not 20%, although Fusion below seems to explain in detail why VW included the words “significant influence” and if GM said the same in 2006 with only 3.7% then one wonders why Suzuki got so upset – unless it is a cover for them just wanting out. Not exactly honorable behavior.

  • avatar
    Tstag

    If VW want a partner to replace Suzuki, I’m betting they look to TATA motors who are probably a bit narked with Fiat right now, given their main competitor is Suzuki.

  • avatar
    Hildy Johnson

    “Suzuki’s chief reason for forging an alliance with VW was to get its hands on environmental technology …
    But VW is not so far ahead of its rivals in green technology … many key technologies are the intellectual property of Robert Bosch GmbH …”

    That doesn’t ring true at all. Someone at Suzuki must have done due diligence on this subject before inviting VW as a major shareholder. Suzuki and Piech aren’t exactly apprentices anymore ;)

  • avatar
    SilverHawk

    Starting in the 06 model year, Fiat has sold a version of the SX-4 hatchback as the Fiat Sedici. In return, Suzuki has had the use of Fiat Multijet diesels in European SX-4 sedans and hatches. So is VW upset about some new agreement for diesels, or have they only now discovered the initial agreement?

    • 0 avatar
      wmba

      Exactly. Well put.

      It almost seems as if both parties entered the agreement rubbing their hands and figuring the other guys for fools.

      Suzuki has always managed to pick the pockets of their erstwhile partners, and then exited stage left.

      VW under that megalomaniac Piech has always gobbled up their partners as detailed by Herr Schmitt above.

      Then they each discovered that their respective ruses were up, and filed for divorce. I hope Sergio is hip to Suzuki’s tricks. He can’t afford to pay them off. Cue Suzuki MultiAir engines as a parting gift.

  • avatar
    Educator(of teachers)Dan

    Hey is that a recent pic of Sergio? It looks like he got a haircut and actually PAID for it.

    Although this Fiat-Suzuki tie-up has me picturing a Suzuki Kizashi with a Dodge grille. The funny thing is it might sell better than some of Dodge’s efforts in the midsize arena.

    FWIW I miss the sort of pics that Bertel would have used with these articles not all that long ago. A story like this would have been accompanied by a pic of an Asian female in bondage.

  • avatar
    eldard

    Why did they move out of Japan’s coast if they’ll just go with Fiat? They’ll need all that water once they start using Italian Roast Engines.

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