Suzuki ends tie-up with VW

Suzuki Motor of Japan has said its directors have decided to end its tie-up and the cross-shareholding relationship with Volkswagen AG. On 9 December, 2009, Suzuki concluded the Framework Agreement with Volkswagen AG and both companies have made various discussions for about two years; however, Suzuki has come to the above decision for the following reasons.

In a press release, Suzuki has given details of why the tie-up is being terminated. Edited excerpts as follows:

• Based on a proposal from Volkswagen AG, Suzuki concluded the Framework Agreement with Volkswagen AG to proceed with partnership as “independent entities and equal partners.” Suzuki’s primary aim for the partnership was to receive technology transfer (including receiving technical information, etc.) from Volkswagen AG so that Suzuki could accelerate its development of environmental technology and other engineering areas to cope with intensifying competition of technology development in the worldwide automotive industry. In order to ensure such cooperative relationship, both companies agreed to have the cross-shareholding relationship. However, Suzuki had to realise that with Volkswagen AG’s minor equity participation of 19.89 percent in Suzuki, it is difficult to receive technology transfer at the same or higher level as Volkswagen Group companies where Volkswagen AG has nearly 100 percent of voting rights. From the beginning of this year, Suzuki has been accelerating its development of own environmental technology and other engineering areas. Suzuki thinks that it is crucial to secure “independence” in its operating policy decision for maintaining its competitiveness in the domestic Kei-car market and Asian markets including India. However, Volkswagen AG publicly reported that Suzuki was a “company over which Volkswagen AG has significant influence on financial and operating policy decisions”.

Thus, Suzuki has concluded that it is difficult to attain its primary aim for the partnership and also there is concern that the partnership would cause negative impact on Suzuki’s autonomous decision-making in its operating policy.

• As Volkswagen AG requested equity participation, Suzuki accepted the proposal in order to realize the Suzuki’s above primary aim and transferred its shares to Volkswagen AG through the scheme of “third-party allocation of shares.” Since the purpose based on which Suzuki transferred its shares to Volkswagen AG will be lost upon dissolution of the partnership, Suzuki is going to request Volkswagen AG to dispose of Suzuki shares held by Volkswagen AG according to Suzuki’s intention.

Regarding the shares of Volkswagen AG that Suzuki currently owns, if Volkswagen AG disposes of its Suzuki shares in line with Suzuki’s intention, Suzuki also will dispose of its Volkswagen shares in line with Volkswagen AG’s intention.

Suzuki has been proceeding with successful business cooperation with domestic and foreign automotive companies without equity relationship. Suzuki believes that if relationship with Volkswagen AG becomes that of “true business partnership” after dissolution of the cross-shareholding relationship, both companies would have good environment where successful cooperation can be built up in fields that both companies gain benefit from.

• Discussions between both companies are expected to be organised as to dissolution of the comprehensive partnership and the cross-shareholding relationship. Suzuki will make announcement after both companies reach final conclusion as well as timing of dissolution, etc.

Earlier, Volkswagen said it was is serving notice of an infringement by Suzuki of the cooperation agreement inked in December 2009. The notice relates to the supply of diesel engines produced by another manufacturer (read Fiat) to Suzuki. Volkswagen takes the view that this contradicts the terms of the 2009 agreement. Suzuki has now been given a period of several weeks to remedy the infringement. Volkswagen said it considers this step regrettable, but necessary, and is open to discussions with Suzuki. At the same time, the company stresses it still regards Suzuki as an attractive investment.

In its half-yearly financial report published in July 2011, Volkswagen noted that the partnership is developing more slowly than expected and announced a review. This review has not yet been finalized.