VW/Suzuki deal hits the skids

Suzuki has asked VW to formally dissolve its troubled partnership. Is VW paying the price for taking the micky?

by Dave Waller
Last Updated: 06 Nov 2012
The Japanese carmaker is demanding that VW sell its 20% stake in Suzuki, bought by the German brand in a strategic partnership two years back.

Relations have, by all accounts, been on the wane for a while, with Suzuki chairman Osamu Suzuki revealing recently that the executives haven’t even been speaking to each other. To be honest the writing was on the wall there right from the off: the original deal was marked by photos of Suzuki boss looking like he’d been abandoned at an office party, next to a horde of back-slapping Germans.

But while relations have been strained for a while, things took a distinct turn for the legalese on Sunday when VW accused Suzuki of violating the partnership agreement by agreeing an engine deal with Fiat in June, where it bought Fiat engines for its SX4 model. Suzuki denied the claims.

The Suzuki deal was a big part of VW’s bid to become world’s largest car maker – the Japanese marque was to help bolster its expertise in very small cars, and its presence in India, where Suzuki is market leader. Both of which begin to look more important given VW has to contend with record debt levels in Europe and the US if it’s going to claim that throne.

Of course its rivals face those same pressures too. Things have been good for carmakers in general, but as they all drive off to the Frankfurt motor show this week they’ve been expressing concerns that everything’s slowing. Not least in China: its car market is set to grow just 10-12% this fiscal year, after a dramatic 30% expansion in 2010/11.

Suzuki’s request to end the partnership may have been in part strategic: it may well have realised that VW’s sought-after diesel technology just isn’t suited to the smaller, cheaper cars it sells. Yet much of this was all down to a classic case of what can be politely labelled as ‘cultural misunderstanding’. Suzuki was treated like a subsidiary, not as the equal it considered itself. In VW’s annual report it describes Suzuki as an ‘associate’ whose ‘financial and operating policy decisions’ it could ‘significantly influence’.

It seems it’s now reaping what it sowed when it threw its towel down over Suzuki’s patch without the due respect.  

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