Volkswagen And Suzuki: Shots Fired

Bertel Schmitt
by Bertel Schmitt

In the long simmering conflict between Suzuki and Volkswagen, the gloves are coming off and we are having a bit of domestic violence. Volkswagen just said in an emailed statement:

“The review of the partnership with Suzuki Motor Corp announced by Volkswagen Aktiengesellschaft has brought its first results. Volkswagen stated in Wolfsburg on Sunday that the company is serving notice of an infringement by Suzuki of the cooperation agreement concluded in December 2009.

The notice concerning the infringement relates to the supply of diesel engines produced by another manufacturer to Suzuki. Volkswagen takes the view that this contradicts the terms of the cooperation agreement. Suzuki has now been given a period of several weeks to remedy the infringement. Volkswagen considers this step regrettable, but necessary, and has offered to discuss the matter with Suzuki. At the same time, the company stresses it still regards Suzuki as an attractive investment.”

At this point (11:48 in the evening in Tokyo and a Sunday in Wolfsburg) it is unclear what the “notice of infringement” will trigger. It depends on how the contract is written. Typically, these contracts stipulate that the party that has been notified is given a chance to rectify the infringement. In this case, it would mean that Volkswagen expects from Suzuki that it at the very least cancels the diesel engine deal with Fiat. An even more welcome step would be that Suzuki places an order with Volkswagen. Both seem to be unlikely.

If Suzuki doesn’t rectify the alleged infringement, then Volkswagen can hold Suzuki in breach of the contract. What happens thereafter again depends on the language of the contract. Typically, an act like this signals the impending end of the alliance. These notices usually serve to establish “cause” that allows an unilateral termination of the contract.

I’d read the claim that Volkswagen “still regards Suzuki as an attractive investment” not as a peace offer, more like a statement that bolsters future damage claims. Volkswagen ominously says that this may not be all:

“This review has not yet been finalized.”

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="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • OldandSlow OldandSlow on Sep 12, 2011

    One day later: It sure looks like Suzuki's reply to the legalese "shots fired" unleashed by VW is to simply tell Wolfsburg, - "It's over." http://www.youtube.com/watch?v=yqQJAroBhn8

  • JSF22 JSF22 on Sep 12, 2011

    Clearly none of us know what the contract says, but you don't do this if you want to continue an amicable partnership. My guess is that VW is throwing anything it can against the wall in hope of getting as much of its money back as possible. Suzuki should give it all back and be happy to be rid of them.

    • Mike978 Mike978 on Sep 12, 2011

      Why would VW sell the shares back? Because Suzuki asks?? If they are making a profit then VW gets a return on their investment. They have no obligation (unless in the contract) to sell back shares - 19.9% (my apologizes for rounding up to 20%) still gives them a commanding position to extract concessions or make a takeover. Suzuki is a second tier player in an increasingly consolidated industry. They have a good position in India, great! Lets see if that sustains them.

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