Japanese Move To Force End To Deal Shows Compromise Unlikely
“How dare you; you, you “associate”!
On a Richter scale of insults, to call someone an “associate” doesn’t register, so why should Suzuki react “theatrically” in the words of VW when the German company referred to its shareholding in the Japanese company as meaning that it had some managerial influence?
Wolfsburg seems baffled.
The final straw for the deal probably was news that Suzuki of Japan ordered new high-tech diesel engines from Fiat and not VW.
VW has called Suzuki’s behaviour “theatrical”. It had accused Suzuki of breaching its contract agreement by awarding the diesel engine contract to Fiat. Suzuki replied that this somehow “significantly disparaged Suzuki’s honour”.
Suzuki has now started arbitration proceedings to force VW to relinquish its 19.9 per cent stake in the company. VW says there’s no legal way to make it do that.
In 2009, Suzuki and VW formed a partnership to develop small cars and new technologies. VW bought its Suzuki stake, which in turn purchased about 2.5 per cent in VW. VW said it 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.
The Financial Times Lex column thought both sides would lose if the deal collapsed.
“The alliance has solid industrial logic, giving Suzuki access to technologies such as diesel engines in which VW is strong. VW, in turn, would have a helping hand in the small car-dominated Indian market, where Maruti Suzuki, in which Suzuki has 54 per cent, is the market leader. Without the deal, VW could develop its own entry-level vehicle, but it would have to come up with a product that is cheap – Indians want to pay under $8,000 – yet profitable,” Lex said.
Self-evidently, a company with a 19.9 per cent stake in another has some influence, otherwise, why bother? Perhaps Suzuki didn’t realise this when it signed the deal, or in the Japanese corporate world it takes a bigger stake to trigger real influence. The arbitration process can take two years to complete. Surely both sides won’t allow this to drag on that long.
Neil Winton – December 1, 2011