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.”
A divorce through media is always ugly …
Bloomberg is also on te story:
http://www.bloomberg.com/news/2011-09-22/suzuki-demands-volkswagen-retract-allegation-of-infringement-1-.html
Funny thing though, BB reviews the history and gives a thin, but decent, overview, but totally fails to cover the issue of VW being unleashed, and able to hostile buy Suzuki, if the 19.9% cap is lifted thru divorce…
“Funny thing though, BB reviews the history and gives a thin, but decent, overview, but totally fails to cover the issue of VW being unleashed, and able to hostile buy Suzuki, if the 19.9% cap is lifted thru divorce…”
In that case, Suzuki wins.
Say sorry, or else we’ll make the Super Carry faster than your Veyron. Ooohhh, you wouldn’t want that.
The super car business isn’t a great way to make profits. Super car companies are either subsidiaries of huge car companies, have profitable business in another field or are so small they hardly register outside of car enthusiasts.
Ford isn’t exactly hurting because it isn’t making the GT anymore. Honda didn’t fall apart after it stopped making the NSX.
Suzuki declares war on VW – I have an idea how that will play out. Suzuki has very little leverage over VW. VW are the ones with 19.9% of Suzuki stock and a more profitable business allowing them to amass a war chest.
Suzuki seems to be OK with impugning VW’s reputation (calling them a ball and chain). Suzuki obviously didn`t think through a partnership with VW and allowed almost a fifth of their company to be bought with little consideration.
Also it seems to be largely Suzuki who are driving this through the media – so much for “Japanese” honour.
Well, you know what they say about publicity. And with a meager marketing budget Suzuki’s gotta try anything.
Darn. I was looking forward to a 1997-style Sidekick with a factory-installed VW diesel engine.
I’m not sure what would be the spawn of this corporate tie-in anyway. A Suzuki Swift with 1.4l TSFI engine? A Grand Vitara V10 TDI? Kisazhi 1.8T? Alto with vw’s new 3 cylinder engine?
I think Suzuki should be careful on angering a man like Piech. He runs VW like his own personal company, with little or no supervision. I can imagine if he’s angry enough at Suzuki he will use all of VW’s substantial might to make life miserable at Suzuki. He really is the type of man who would be perfect for the mercedes in Steve’s article above.
Volkswagen consistently communicates that they are not planning to sell or reduce their 19.9% share of Suzuki. On Piech’s world domination chess board, Suzuki may find it difficult to court new partners, as long as Volkswagen holds (or grows) their shares.
+1 – exactly. VW has most if not all the chips in this game. They have a huge amount of money, good prospects in many markets and the 19.9% that they can keep and nothing can force them to do it. Suzuki on the other hand will find it difficult to have an equity partnership with anyone else and are successful in very few markets (US and Europe certainly aren`t included).
Kinda sounds like Suzuki is having their own HOA problems. They didn’t read or understand what they were getting into with the move to the Volkswagen ‘hood.
“I think Suzuki should be careful on angering a man like Piech. He runs VW like his own personal company, with little or no supervision.”
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My impression is that this is not the case anymore. VW has become much more cost-conscious and sober recently – examples: downgraded aspirations for the next Phaeton, no more W8 Passats, no rear engine for the Up, decontented Jetta to squeeze a profit out of a wilting dollar. It seems this is Winterkorn’s direction, not Piech’s.
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.
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 …
“Not to mention that VW could keep buying those new shares anyway …”
That means VW keeps feeding Suzuki with cash.
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.