Suzuki divorces “Wagen-san” – a teachable moment

No partnership works without meeting of minds, with opposite agendas and colliding expectations

by Gerhard Fasol, All Rights Reserved. 20 September 2015, updated 27 September 2015

VW Volkswagen Suzuki
VW Volkswagen Suzuki

Suzuki Volkswagen – bottom line first:

  • Volkswagen wanted Suzuki more than Suzuki needed Volkswagen
  • Suzuki-CEO Osamu Suzuki: “we looked at Wagen’s technologies, and could not find anything we need” (Osamu Suzuki’s blog in Nikkei, in Japanese language)
  • Volkswagen underestimated Suzuki’s strength and resolve, and didn’t do the required homework
  • Volkswagen overestimated its own leverage on the opposite side of the world from Wolfsburg
  • Partners with opposite agendas and colliding expectations, without communication and no homework can’t partner
  • Its not about “cultural differences”. Not at all.

On 9 December 2009 a beaming Martin Winterkorn (VW-CEO) was celebrating the new “comprehensive partnership” with Suzuki Motors, and Osamu Suzuki, the 79 year old CEO of Suzuki, was looking the other way, avoiding Mr Winterkorn’s eyes – as you can see in Reuters’ photograph of the occasion.

Reuters reported, that Mr Osamu Suzuki was asked how he would feel about a German CEO of Suzuki Motors in the future, and his answer was unambiguous: Mr Suzuki emphatically stated that Suzuki will not become a 12th brand for Volkswagen, and that he does not want anybody to tell him what to do.

Wall Street Journal reported, that Suzuki and Volkswagen would negotiate details in the weeks or months to come. We now know that these negotiations did not lead anywhere, and were never concluded satisfactorily.

It is obvious that there never was any “meeting of minds”, the expectations were colliding, and the CEOs had not a single language in common in which they could talk directly. At the press conference they looked away from each other.

Osamu Suzuki airs his frustrations with “Wagen-san” in his Japanese language blog in Nikkei – the world’s largest business daily

On 1 July 2011, Suzuki-CEO Osamu Suzuki informs the world about his frustrations about “Wagen” (ワーゲン), via a blog post “スズキとワーゲンの今とこれから (鈴木修氏の経営者ブログ)” (english translation: “Suzuki and Wagen now and the way forward”). Osamu Suzuki’s blog post can be read here (may need Nikkei subscription).

Professor Ferdinand Dudenhoeffer, Director of the Center for Automotive Research at the University Duisburg-Essen according to Bloomberg, summarized: “Mr Suzuki didn’t want to be a Volkswagen employee, and that’s understandable”.

VW’s reply: “The tail is not going to wag the dog” (VW-CEO Winterkorn cited in Der Spiegel on 19 Sept 2011)

Germany’s leading intellectual and business weekly Der Spiegel on 19 Sept 2011 quotes VW-CEO Martin Winterkorn about the VW-Suzuki relationship: “Da wackelt der Schwanz nicht mit dem Hund” (the tail is not going to wag the dog, which I guess has the meaning that Mr Winterkorn perceived Suzuki Motors as the junior partner who cannot have any independent power in a relationship with Volkswagen).

Suzuki Volkswagen alliance time line

  • 9 Dec 2009: VW-CEO Martin Winterkorn and Suzuki-CEO Osamu Suzuki announced the “comprehensive partnership” at a press conference in Tokyo
  • 9 Dec 2009: Suzuki transferred 107,950,000 treasury shares to Volkswagen AG, valued approx at 226,695,000,000 yen (= approx. US$ 2.3 billion)
  • 15 Jan 2010: VW purchased 19.89% of Suzuki shares for about € 1.7 billion
  • 1 July 2011: Osamu Suzuki publicly airs his frustrations with “Wagen-san’s” intentions in his Japanese language blog in Japan’s Nikkei “スズキとワーゲンの今とこれから (鈴木修氏の経営者ブログ)” (“Suzuki and Wagen now and the way forward”) (may need Nikkei subscription)
  • Sept 2011: Suzuki’s Board decides to terminate the partnership
  • 18 Nov 2011: Suzuki gives notice to Volkswagen of termination of partnership, Volkswagen does not reply (says Suzuki)
  • 24 Nov 2011: Suzuki files for arbitration at International Court of Arbitration of the International Chamber of Commerce (ICC) in London
  • 30 Aug 2015: ICC Arbitration Court issues judgement and holds the termination of the partnership valid, orders VW to sell all Suzuki shares back to Suzuki (or a 3rd party selected by Suzuki), and orders Suzuki to pay damages for breaking the agreement
  • 17 Sep 2015 8:45am: Suzuki purchases back 119,787,000 of its own shares previously owned by VW via Tokyo Stock Exchange ToSTNeT-3 system for 460,281,547,500 yen (approx. US$ 3.9 billion), completing the termination of the partnership and capital alliance with VW
  • 26 Sep 2015: Suzuki announced the transaction to sell all 4,397,000 Volkswagen shares which Suzuki owns to Porsche Automobile Holding SE, completing the termination of the partnership and capital alliance with VW

A teachable moment

  • “Comprehensive partnership” without meeting of minds does not work
  • Partnerships are hard when CEOs on both sides don’t have any language in common, thus can’t talk to each other – and have exactly opposite expectations from the start and don’t address them until its too late
  • Processes and methods successful in Europe or USA often don’t work in Japan
  • Its not about “cultural differences”. Not at all.
  • Its about trust, respect, communication and “meeting of minds”, shared (not opposite) expectations and agendas.
  • Speaking at least one language in common helps.
  • more details and analysis here

Financial aspects

  • VW made approx. US$ 1.3 billion profit on the Suzuki shares it owned from 2009-2015
  • Suzuki broke even approximately on selling own treasury stock to VW and repurchasing the same shares back from VW a few days ago, and on temporarily owning 2.5% of VW, but still may have to pay compensation to VW.
  • Read detailed financial analysis here.

During the period 2009-2015 both VW and also Suzuki share prices increased substantially. The reason that VW made substantial financial profits from the VW-Suzuki share transactions, while Suzuki did not, is that Suzuki used 1/2 of the proceeds of selling Suzuki treasury stock to VW for R&D, thus had a much smaller holding of VW shares than VW did of Suzuki shares.

With cash reserves of approx. US$ 8 billion Suzuki will be just fine, and can now focus on expanding Maruti-Suzuki’s 37% market share of India’s passenger car market and other exciting growth projects.

And Volkswagen can now focus on growth markets, and Toyota – and other very pressing issues.

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