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automotive industry disruption Leadership M&A

Was Osamu Suzuki first to understand Volkswagen’s Diesel issues?

Osamu Suzuki: “we looked at Wagen’s technologies, and could not find anything we need” (Nikkei, 1 July 2011)

Did Volkswagen underestimate Mr Suzuki?

VW Volkswagen Suzuki
VW Volkswagen Suzuki

Over the last 18 years myself and our company have worked on many foreign-Japanese company partnerships, therefore we always have great interest in business partnerships involving Japanese companies, and have followed the Volkswagen-Suzuki relationship closely.

We published two blog articles after the ICC Arbitration Court issues judgement sealing the Suzuki-Volkswagen divorce, and before we became aware of the Volkswagen Diesel issues:

When I was asked to brief German President Horst Köhler on April 3, 2005 about Japan’s technology sector, my advice included the following:

Interaction with Japan enforced total restructuring of leading US companies, including INTEL and MOTOROLA. According to my knowledge, there are almost no European companies yet which were forced to totally restructure their business due to interaction with Japan. I feel that this may happen in the future.

Volkswagen could be a candidate now, although US agencies and courts are now primary actors, Suzuki’s role may not be negligible.

Volkswagen had already lost out against Suzuki, and Suzuki’s CEO Mr Osamu Suzuki in the 1980s when India started to build an Indian automotive industry. India had considered to build India’s car industry based on Volkswagen’s Beatle, but decided to go with Mr Osamu Suzuki instead. Maruti Suzuki India Limited (マルチ・スズキ・インディア) achieved 45% market share in India’s passenger car market in 2014. Suzuki Motors owns 54% of Maruti Suzuki, and Mr Osamu Suzuki is greatly respected as Japan’s No. 1 top India expert.

When Mr Osamu Suzuki entered into the Maruti Suzuki India Joint-Venture, he reportedly insisted to have 100% decision making and management rights in the Joint-Venture.

Links between the Suzuki-Volkswagen and the Volkswagen Diesel issues time lines.

We can see interesting links in the time lines of the Suzuki-Volkswagen relationship and the Volkswagen Diesel issues:

Time line of events relevant to the Suzuki Volkswagen relationship

  • 16 Nov 1970: “Maruti technical services private limited” (MTSPL) to create an Indian automobile industry, first CEO: Sanjay Gandhi. Sanjay Gandhi contacted Volkswagen AG to seek a cooperation to produce an Indian version of the VW Käfer (Beatle). However, a cooperation with Volkswagen did not work out. The company failed in 1977, and was reborn as Maruti Udyog Ltd by Dr V. Krishnamurthy.
  • 1982: Maruti Udyog Ltd and Suzuki entered into a licensing and joint venture agreement, creating Maruti Suzuki India Limited (マルチ・スズキ・インディア), which in 2014 achieved a 45% market share of India’s passenger car market.
  • 20 0ctober 2005: Suzuki and FIAT announce a partnership on FIAT’s Diesel engines (see: Suzuki announcement)
  • 6 March 2006: Suzuki and GM announce the reduction of GM’s stake in Suzuki from 20% to 3%, strongly reducing the GM holding in Suzuki, which had started in August 1981. (see: Suzuki announcement)
  • 9 Dec 2009: VW-CEO Martin Winterkorn and Suzuki-CEO Osamu Suzuki announced the “comprehensive partnership” at a press conference in Tokyo (see: joint Suzuki Volkswagen press announcement)
  • 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
  • March 2011: Volkswagen writes in the annual report that Volkswagen “significantly influence financial and operating policy decisions” at Suzuki
  • 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
  • 2013-2014: The International Council on Clean Transportation (ICCT) conducts a research project in collaboration with the West Virginia University to determine real world, away from test rigs, emissions from diesel cars in the USA. Project leader is John German. ICCT tests a VW Jetta, a VW Passat, and a BMW X5, and finds that in real world driving conditions, the VW Jetta exceeds the US-EPA Tier2-Bin5 Nix (Nitrogen Oxide) emission standards by 15 to 35 times, the VW Passat by 5 to 20 times, while the BMW X5 generally conformed to the standards except in extreme conditions. The fact that the BMW X5 conforms to the standard for the ICCT was proof that the technology to conform existed. (see: ICCT announcement)
  • 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
  • 18 September 2015: Press announcement by The ICCT “EPA’s notice of violation of the Clean Air Act to Volkswagen
  • 18 September 2015: EPA notice of violation to Volkswagen (See: EPA announcement), EPA website concerning Volkswagen
  • 18 September 2015: California Air Resources Board (CARB) letter to Volkswagen, “Re: Admission of Defeat Device and California Air Resources Board’s Request”
  • 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

The International Council on Clean Transportation (ICCT) study on real-world exhaust emissions from modern diesel cars

The ICCT noted that there is a wide discrepancy in emissions by cars under test conditions and in real live road driving conditions, and conducted the project on real-world exhaust emissions from modern diesel cars.

The report can be dowloaded here as a pdf file: “REAL-WORLD EXHAUST EMISSIONS FROM MODERN DIESEL CARS

“In-Use Emissions Testing of Light-Duty Diesel Vehicles in the United States”

The ICCT contracted with the Center for Alternative Fuels, Engines and Emissions (CAFEE) at West Virginia University to test the real road emissions of three cars in the USA. This study is explained on the ICCT website “In-use emissions testing of light-duty diesel vehicles in the U.S.”

The final report can be downloaded here: “Final Report: In-Use Emissions Testing of Light-Duty Diesel Vehicles in the United States. by Dr. Gregory J. Thompson (Principal Investigator)“.

Copyright (c) 2015 Eurotechnology Japan KK All Rights Reserved

Categories
automotive industry Corporate Governance Leadership M&A

Mr. Suzuki didn’t want to be a Volkswagen employee, and that’s understandable (Prof. Dudenhoeffer via Bloomberg)

Mr Suzuki (Chairman of Suzuki Motors), wrote in his Japanese blog, that “ending the partnership with Volkswagen (Wagen-san as he calls VW) was like the relieve I feel after having a fishbone stuck in my throat removed”

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

Mr Suzuki (Chairman of Suzuki Motors), wrote in his Japanese blog, that “ending the partnership with Volkswagen (Wagen-san as he calls VW) was like the relieve I feel after having a fishbone stuck in my throat removed”

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.

Copyright (c) 2015 Eurotechnology Japan KK All Rights Reserved