From The Wall Street Journal
September 13, 2011
The Wall Street Journal (Tokyo) - Suzuki Motor Co. vowed to buy back its shares held by Volkswagen AG, seeking to end a stormy marriage that got little traction and produced no jointly developed vehicles.
Regardless of whether VW sells its shares in the near-term, the apparently failed pact puts VW in a bind over how to expand in a key emerging market and raises questions over Suzuki's own growth plans.
Osamu Suzuki, chairman of the Japanese auto maker, said Monday that his company would seek to buy out VW's 19.89% stake at market prices and no longer would cooperate under the companies' capital partnership. "Proposing a dissolution of our alliance means asking for a divorce," Mr. Suzuki said at a news conference. He said his company's decision to end the tie-up was final.
While cracks in their relationship had been forming for some time, the latest trigger appeared to have been VW's statement that Suzuki breached their contract by deciding in June to purchase diesel engines from Fiat SpA of Italy. Volkswagen, which is widely seen as an industry leader in diesel technology, said Sunday it would give Suzuki "several weeks to remedy the matter."
Mr. Suzuki said Monday he thought Volkswagen Chief Executive Martin Winterkorn understood that Suzuki had to use Fiat's 1.6-liter diesel engines since it would be hard to install VW's engines in some cars because of the German engines' design. The Suzuki chairman said he explained the situation at a meeting in late January with Mr. Winterkorn and sent an official document a few days later. Suzuki said its deal with Fiat didn't violate the VW pact.
Mr. Winterkorn said VW still expects to hold talks with Suzuki and doesn't plan a rash response. "We'll wait and see," he said.
VW executives privately described a partnership that started off well, with groups meeting over the first several months and identifying potential areas of collaboration. Soon, however, Suzuki managers began to withdraw, offering reasons why one project or another might be problematic, a VW executive said.
Suzuki said VW was unwilling to support the Japanese company fully, given the German car maker's limited capital involvement. "With Volkswagen's stake in our company limited [to 19.89%], we found that we wouldn't be able to generate the type of synergies from technology transfer that we had expected," Mr. Suzuki said. Since his company wanted to maintain its independence, joining the VW group wasn't an option. Suzuki said it will sell back its 1.5% stake in the German company if VW agrees.
Suzuki's stock price closed Monday 28% below the ¥2,061 ($26.59) a share VW paid in January 2010. Suzuki's shares fell 2.8% Monday to ¥1,484 on the Tokyo Stock Exchange. VW's shares fell 1.5% to close at €102.20 ($141.87) in Frankfurt.
Volkswagen's war chest of nearly $20 billion in cash eases pressure to sell its Suzuki shares immediately, though analysts said that without the alliance, there probably would be little reason to keep the stake in the long term.
Foreign auto makers have had a mixed track record with capital tie-ups in Japan. General Motors Co. in recent years has sold off stakes in Suzuki, truck maker Isuzu Motors Ltd. and Subaru maker Fuji Heavy Industries Ltd.as the U.S. auto company's Japan strategy teetered and the company's financial situation weakened.Ford Motor Co. has slashed its 33.4% controlling stake in Mazda Motor Co. to 3.5%. Daimler AG bought a controlling stake in Japan's Mitsubishi Motors Corp. in 2000, which increased to a peak of 37.3%, and sold it all in 2005. Only Renault SA's 12-year strategic alliance with Nissan Motor Co. seems to have flourished.
The biggest question facing VW now is how to retool its expansion strategy in India. Suzuki's prowess in small cars with engine displacements of 1,000 cubic centimeters or less has given the small Japanese company strong positions in its home market and in India. That has proved attractive to larger auto makers looking to make inroads in what have remained largely niche markets.
For Suzuki, the unraveling of its ties with VW raises questions about the ability to grow outside India and Japan. An exit by VW might also increase Suzuki's vulnerability to a takeover bid by putting its shares into play unless the Japanese company finds a passive shareholder.
The apparent collapse of the alliance evokes a similar dispute between Suzuki and GM, which viewed the small but scruffy Japanese auto maker as an ideal fit to provide the missing pieces in the U.S. company's global portfolio. But the nearly 30-year relationship that began with a 5.3% stake in 1981 and rose to more than 20% ended when GM sold the last of its holdings three years ago. The David-and-Goliath partnership never produced more than a token effort from Suzuki to deliver on promised advantages from GM, whose financial troubles ultimately provided a diplomatic way to end the tie-up.
Mr. Suzuki on Monday said he wondered whether VW shareholders would be satisfied holding on to shares of a company that is seeking to break up. The German car maker rapidly has been establishing new dealerships across India and opened a plant in Pune two years ago. But the 32,627 cars VW sold in the country last year represented a small fraction of the country's two million vehicles sold. To reach its goal of capturing some 10% of India's car sales over the next several years, VW had counted on its partnership with Suzuki, whose Maruti Suzuki unit has about half of the Indian market. "There's not another obvious partner in India for VW," said Daniel Schwarz, an auto analyst with Commerzbank in Frankfurt.
VW's most likely option is to go it alone, but India poses a tricky market, he said. Unlike China, where VW and other German manufacturers have enjoyed robust growth, "Indian drivers don't necessarily go for cars because they are popular in the West," he said. "They prefer models specifically built for the market."
VW has a sparse track record in alliances with independent auto makers but has pursued control of a stable of auto brands over the past two decades. And within the industry, VW is well-known for steering collaboration among those brands—which may have made Suzuki executives wary of the German auto maker's intentions.
Volkswagen in July acquired control of German truck maker MAN SE, four years after purchasing a minority stake and installing VW Chairman Ferdinand Piech at the helm of MAN's supervisory board. Volkswagen also is in the midst of completing a multistage takeover of German sports-car maker Porsche, which already operates as part of Volkswagen's stable of brands.
Suzuki requests divorce from VW