Suzuki Motor Corporation will dissolve its two-year partnership and cross-shareholding relationship with Volkswagen AG after the German carmaker accused Suzuki of breaking the agreement with a diesel engine order it made with Fiat.
Suzuki formed an alliance with Fiat in 2005 to manufacture engines in Asia and purchased diesel engines from the Italian carmaker in June 2011, which Volkswagen considers an act of infringement on its partnership agreement. In an interview, Osamu Suzuki, Chairman of Suzuki, said the company “sees no reason why Volkswagen would be upset” about Suzuki expanding its purchase of engines from Fiat.
When the inking of the agreement took place in early December 2009, it read that both Suzuki and Volkswagen were to operate as "independent entities and equal partners.” But Volkswagen said in its 2011 annual report that Suzuki was a “company over which Volkswagen AG has significant influence on financial and operating policy decisions,” a direct stab at Suzuki’s insistence to remain independent.
Suzuki aims to be competitive in the domestic Kei-car and Asian auto markets, which include India. The Japanese automaker entered into the partnership with Volkswagen to further the development of environmental technology, such as hybrid and electric car technologies, and other engineering areas in the automotive industry. Suzuki also wants to better compete in the global automotive industry.
Another area of contention for the crumbling partnership is the cross-shareholding agreement between the two automakers. The shares that Suzuki and Volkswagen own in each company would be relinquished with the dissolution of the partnership. However, both entities are holding fast to their principles for some form of dominance.
Porsche Buyout At Risk
The cost of this break up is more than lost dollars and opportunities as the two automakers try to regroup and move forward. Suzuki has not fared well with plummeting stock prices and a trail of failed business ventures, while Porsche’s buy out of Volkswagen end of 2011 is now off due to the company’s financial troubles, pending lawsuits and recent partnership issues with Suzuki.
It is not clear how things will turn out for the two automakers in light of the latest setbacks, but it is evident that if there is any hope of resolution, considerable compromising must be made by each party.
Key Statistics – Global Automotive Industry (source: Scotiabank Group)
- During China’s second quarter, the sales of Japanese car brands were down by 20%.
- The first two quarters of 2011 indicate global automotive sales growth of 5%.
- China, which is the world’s largest auto market, posted double-digit earnings in June, marking the largest increase since January.
- China’s car sales are above 10 million units this year, which is up from the over 9 million sold in 2010. By 2020, sales are predicted to exceed 25 million per year.
- Automakers in Germany have unveiled recent plans to invest an additional $15 billion in China through the year 2015.
- Russia surpassed forecasted automotive sales by reaching 56% in the first half of the year.