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Cracks Appear In Suzuki, VW Alliance

Partnership Has Been In Neutral Since Inception Day

Suzuki thinks that its alliance with Volkswagen is strictly a business arrangement with no implications for the control of the Japanese company and it is miffed because of the way the German giant explained its relationship in its annual report.

VW said Suzuki was an “associate” company, which sounds harmless until you turn to the “definitions” section. An associate company is defined as an outfit whose finances or operating decisions can be directly or indirectly influenced by VW.

Not so, said Suzuki, which moved into red flag and bull mode.

“It was made very clear when we tied up with Volkswagen that we did not want to become consolidated, and that we should remain independent. We feel we need to return to the starting point, including over the ownership ratio,” executive vice-president Yasuhito Harayama said.

In 2009, Suzuki and VW formed a partnership to develop small cars and new technologies. VW bought 19.9 per cent of Suzuki which bought a stake of about 2.5 per cent in VW. VW wanted to build a bigger presence in India’s small car market, while Suzuki sought access to VW’s diesel engines, hybrids and electric cars.

It turns out that nothing has happened between the two companies since the deal was announced.

Deutsche Bank said this reflected tension between the partners from day one.

“To start, VW was protective of its position in China while Suzuki was protective of India – as it should be considering its importance to company profits,” said Deutsche Bank analyst Kurt Sanger.

Sanger doesn’t think there is much mileage left in this alliance.

Questioning the merits
“Suzuki has indicated it is not being dealt with as an equal. We have always felt and feared that Suzuki’s desire for independence was underestimated. We have always questioned the merits of this relationship considering very different corporate cultures and market strategies. Our recommendations on Suzuki do not include any assumed synergies form this relationship as we continue to consider it as an option,” Sanger said.

In late July VW said it was reviewing the deal.

Neil Winton – August 1, 2011  

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