Suzuki To Volkswagen: Apologize, Or Else

Bertel Schmitt
by Bertel Schmitt

Suzuki today sent a letter to Volkswagen, demanding a retraction of the allegation that Suzuki breached its contract with Volkswagen. Reuters calls the letter an escalation of “a war of words as it tries to break off equity ties with its estranged partner.” And the tone of the letter definitely sounds belligerent:

For the retraction, Suzuki gives a very tight deadline until September 30. Suzuki does not say what will happen if no such letter arrives. The mention that “Suzuki’s global reputation has been significantly damaged by the announcement made by Volkswagen AG” indicates that Suzuki could be asking for a significant compensation for the damaged reputation. Reputation has a high price in Japan.

In the letter, Suzuki basically says that Volkswagen’s assertion that Suzuki violated their framework agreement by buying engines from Fiat is far-fetched:

“Last year, both companies negotiated for several months regarding the conditions for Suzuki’s use of certain engines manufactured by Volkswagen AG, however, Suzuki’s requirements were never satisfied. In January of this year, when Mr. Osamu Suzuki conferred with Dr. Winterkorn in Hamamatsu, Suzuki delivered its message that Suzuki would not be using Volkswagen diesel engines together with background reasons. In response to such explanation, Dr. Winterkorn requested Suzuki to issue a written notification if Suzuki decided not to use diesel engines manufactured by Volkswagen AG. Within a couple days of such request, we formally notified Volkswagen AG of such decision in writing. Immediately after issuing such notice, engineers from both companies who are responsible for this matter also mutually confirmed with each other that Suzuki will not use diesel engines manufactured by Volkswagen AG.

Volkswagen AG has requested Suzuki in the mentioned notice to implement a process to compare the diesel engines manufactured by Volkswagen AG and by Fiat as a remedial action. We believe it is clearly unreasonable for Volkswagen AG to claim on 11 September that Suzuki is in breach of the Framework Agreement based on presumption that this process is deficient, after a considerable amount of time has passed since Suzuki and Volkswagen AG mutually confirmed that Suzuki would not be using such engine.”

Suzuki’s CEO Osamu Suzuki said today that the partnership had been initiated by Volkswagen, and that the idea was a technology transfer to Suzuki.

“However, we gradually realized that only with the minor shareholding by Volkswagen, 19.89%, Suzuki cannot have the initially promised access to their technology in reality.

Patiently, we continued effort to materialize cooperation, which will be win-win for both companies. However, this partnership does not bring us benefits we expected but turned out to be a “ball and chain” for our managerial independence.

On September 11, Volkswagen AG sent us a notice alleging that Suzuki committed a severe breach of our Agreement and published it through their press release. This again became our new “ball and chain.”

Today, Suzuki officially and publicly became untied. It is highly unlikely that Suzuki will find a written apology in its mailbox by end of the coming week.

Hamamatsu is in a state of war with Wolfsburg. In case anybody missed the obvious, Suzuki ends its statement suchly:

“I think you can share my view why Suzuki would like to dissolve partnership and cross-shareholding relationship with Volkswagen AG.”

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href=""> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href=""> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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4 of 17 comments
  • Unhittable curveball Unhittable curveball on Sep 23, 2011

    If Suzuki really wants to get rid of VW's 19.99%, they could just go to the equity market and issue a bunch of new shares, therefore diluting VW's percentage.

  • Th009 Th009 on Sep 23, 2011

    In principle, yes. But if you want to get VW down below 10%, for example, you would need to dilute *everyone* by 50% -- and would today's equity market have appetite for such a huge share offering in Suzuki? Not to mention that VW could keep buying those new shares anyway ...

    • See 1 previous
    • Mike978 Mike978 on Sep 24, 2011

      @wsn true but they could also easily get more shares as a % - not exactly what Suzuki want. But then again they have been pretty clueless so far so anything could happen.

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