SUZUKI Motor Corp, stung by its failed co-operation with Volkswagen AG, now plans to defend its hard-won independence.
After four years of dispute, arbitrators upheld Suzuki’s request to terminate a 2009 agreement that failed to yield a single joint project with the German company.
As a result, Volkswagen will sell its 19,9 percent Suzuki stake, which was valued at about 463 billion yen (US$3,8 billion) based on the August 28 closing price.
“The past six years have been a very valuable experience,” Chairman Osamu Suzuki, who brokered the deal, told reporters in Tokyo on Sunday.
“I came to realise there are companies different from us,” and as a result, independence will be a “precondition” for future dealings.
Suzuki, a specialist in inexpensive cars, is smaller than global rivals like Volkswagen, which sells about four times as many vehicles. That puts pressure on the Japanese automaker to safeguard its dominance in India and control rising development costs for green-car technologies, while pursuing a goal to boost annual revenue to 3,7 trillion yen by March 2020.
Rather than pursue other partnerships, Suzuki should focus on its India operations and Maruti subsidiary, said Daniel Loeb, whose hedge fund Third Point LLC disclosed in July that it bought a stake in the car maker.
“Any potential partner would be quite worried about what sort of partnership it would have with Suzuki after what happened with VW,” said Ashvin Chotai, managing director of researcher Intelligence Automotive Asia.
“The culture of Suzuki is not very conducive towards working in a joint venture.”
The car maker has enough cash on hand to purchase the shares held by Volkswagen and should avoid issuing equity or any convertible securities that would lead to dilution for existing shareholders, Loeb told reporters on a conference call.
While he and his research team haven’t contacted or met with Suzuki management, Third Point plans to continue holding the company’s shares, which he called “extremely cheap”.
The goal of the pact with VW was to cooperate on small, fuel-efficient cars for emerging economies, providing Suzuki with access to technology while giving VW a wider role in the Indian market through Suzuki’s business there.
Relations soured in 2011 after the Japanese company agreed to buy diesel engines from Fiat.
As trust broke down, the companies accused each other of breaching the accord.
Fiat Chrysler Automobiles NV chief executive officer Sergio Marchionne, who is prodding the auto industry to consolidate, has expressed interest in talking with Suzuki in the past. Fiat wasn’t available to comment outside regular office hours on Sunday.
“Suzuki will certainly enter into partnerships, but to do that they don’t have to get married,” said Ferdinand Dudenhoeffer, director of the Centre for Automotive Research at the University of Duisburg-Essen. “Scale isn’t the secret to happiness.”
The Hamamatsu-based manufacturer may instead focus on targeted development projects in areas such as fuel cells and autonomous driving, said Takaki Nakanishi, an auto analyst at Jefferies Group LLC.
Even in winding down the relationship, the two companies were at odds.
Suzuki said that VW had to sell the stake back to them or a party of the Japanese company’s choosing, while VW said the buyer of the stake hasn’t been decided yet. The German company, which has hired a bank for the sale, said it’s still analysing the ruling and will determine later who the buyer will be.
Suzuki also faces the prospect of having to pay damages after arbitrators ruled the Japanese company breached the agreement.
The amount of any penalties would be addressed in a further stage of the arbitration proceedings, Suzuki said.
The company has “turned misfortunes into opportunities” before and will take time to review its strategic options, said Osamu Suzuki.
The one thing that’s clear is that the company won’t be working with Volkswagen again. “You don’t remarry someone who you’ve divorced,” Osamu Suzuki said. —Bloomberg
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