Divorce Decree Finalized for Volkswagen, Suzuki

A handshake doesn’t mean an alliance will succeed.

Six years after Volkswagen and Suzuki forged an alliance, the London Court of International Arbitration issued a divorce decree. That decree followed an appeal by Suzuki nearly four years earlier to dissolve the alliance, one where Suzuki demanded that Volkswagen sell its 19.9 percent stake in the Japanese automaker.

The decree means that Volkswagen may reap $3.8 billion from selling its shares based on Suzuki’s stock value at the close of business last Friday. Suzuki will be allowed to buy the shares, but it is also likely they’ll have to pay Volkswagen compensation as the court found the automaker breached the contract reports the Wall Street Journal. Further arbitration will settle the compensation claim and tie up other loose ends.

A Failed Alliance

The Volkswagen-Suzuki alliance never got off the ground as no joint projects were consummated. As part of the alliance, Suzuki had sought access to Volkswagen’s fuel-saving technologies, while Volkswagen hoped to gain a larger stake in India, a market dominated by Maruti Suzuki.

Cultural differences and misunderstandings impacted the alliance. In 2011, Volkswagen charged Suzuki with breaching the agreement when the Japanese automaker sought to purchase diesel engines from Fiat sPa, the company now known as Fiat Chrysler Automobiles. Suzuki insisted that it had the right to buy from Fiat, but Volkswagen was equally as insistent in its opposition.

Suzuki also pushed back against Volkswagen for including the company in its brand portfolio. But the disagreement runs much deeper than that as mutual distrust built up early and came to a head just 21 months into the alliance. Automotive News ran a report in early August detailing the troubled alliance based on internal documents it had secured.

See AlsoCar Manufacturers: Who Owns What?

A Pattern of Failures

The dissolution of the Volkswagen-Suzuki alliance follows several other failed attempts to bring disparate automakers together. For example, shortly after GM emerged from bankruptcy, it forged a limited alliance with Peugeot, the French automaker. GM took a nominal 7 percent stake in Peugeot, but sold its shares in late 2013, less than two years after forging the alliance. The alliance was established in a bid to increase economies of scale, but it later crumbled.

DaimlerChrysler is another example of a failed alliance. The two companies joined forces in 1998 as part of a $37 billion “merger of equals.” Although several collaborative projects were completed, the two parties were never on the same page with the Americans charging that the Germans were controlling the entity. The two parted ways less than a decade later and at a great financial loss to Daimler.

Examples of Successful Alliances

Alliances that do work typically involve a healthy company absorbing or merging with one that is ready to go out of business. In the 1980s, Chrysler purchased American Motors, and from that acquisition, it was able to gain Jeep.

In 1999, Renault and Nissan forged an alliance as the Japanese automaker found itself in perilous financial shape. The two companies — one French, the other Japanese — have managed to make things work by remaining relatively independent of each other. It also helps that Renault’s CEO, Carlos Ghosn, became Nissan’s CEO. Another strong leader, Sergio Marchionne, has helped Fiat and Chrysler operate smoothly, but as one company.

Suzuki is not likely to seek a new partner, having valued its independence too much to work in that capacity. Then again, it is doubtful that any other automaker would risk forging an alliance with the company as long as its patriarch and CEO, Osamu Suzuki, remains involved in the business. Despite having relinquished his role as president and chief operating officer to his son, Toshihiro, the senior Suzuki will maintain his formidable presence within the company. His presence is certain to thwart any potential hookups that dilute the company’s self-determination.

See AlsoDeal Undone: Fiat, Chrysler, Renault Merger

Artwork courtesy of Wikimedia.

1 thought on “Divorce Decree Finalized for Volkswagen, Suzuki”

Leave a Comment