Nothing Much Changes For Either Side, As Deal Achieved Nothing
There Are Some Ripples As VW Looks At Big Suzuki Share Price Loss
“VW seems overweening, Suzuki truculent. That is an outcome of which neither side can be proud”
The marriage between Suzuki of Japan and Volkswagen is on the rocks, with the final straw news that Suzuki of Japan ordered new high-tech diesel engines from Fiat and not VW.
There had been rumblings over the last few months as Suzuki objected to being referred to as an associate company in VW’s annual report, with the implication that the German company could order the Japanese around.
Suzuki formally asked for the deal to be ended on September 12.
In 2009, Suzuki and VW formed a partnership to develop small cars and new technologies. VW bought 19.9 per cent of Suzuki which in turn purchased a stake of 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.
According to Deutsche auto analyst Kurt Sanger, who questioned the the merits of the deal from the start, the imminent dissolution of the alliance will have no impact on Suzuki.
“We have not assumed any synergies from this tie-up, so there is no impact to our assessment of future earnings potential at Suzuki,” Sanger said.
Suzuki has now formally asked VW to dissolve the partnership. VW said Suzuki had violated the agreement, and was seriously miffed by its decision to buy diesels from Fiat, which eagerly stirred up the aggravation by mischievously talking about how Suzuki would make an interesting partner in Asia. But Fiat has had a long relationship with Suzuki, which makes the Fiat Sedici badged SX4 at its plant in Hungary.
The Financial Times Lex column thought the breakdown of the deal reflected badly on both companies’ managements. Lex said there had been no formal exchange of board seats, staff or intellectual property. Suzuki had provmised to develop an environmentally friendly small-sized vehicle. The Japanese had seen the exchange of shares as a token of commitment to co-operate.
Lex did think that there was a serious rationale behind the deal to boost VW’s presence in India while allowing Suzuki access to high technology it couldn’t develop on its own. But the breakdown of the alliance reflected badly on both sides.
“But whatever happens from this point, VW seems overweening and Suzuki truculent. That is an outcome of which neither side can be proud,” Lex said.
It might take some time to unravel the alliance because even though nothing was achieved, there are serious financial implications from the share swap from which Suzuki emerges a clear winner, according to IHS Automotive analyst Tim Urquhart.
“(VW’s) shares have risen by 64 per cent since the partnership was announced. By way of contrast Suzuki’s shares have fallen by 33 per cent. This also means that VW has lost in the region of €1 billion in the value of Suzuki shares that it originally purchased,” Urquhart said.
Neil Winton – September 20, 2011