SUZUKI: SMALL CARS, INDIA AND ITS BREAKUP WITH VOLKSWAGEN

SUZUKI

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Susuki Makai
Suzuki is a producer of motorcycles and minicars and the forth largest automaker in Japan in terms of stock value and the world’s third largest motorcycle maker. It was founded in 1920 and continues to be run by the same Suzuki family that founded it. The founder ran the company from 1920 to 1958. His son served as president for 18 years until he was replaced by his on-in-law.

Osamu Suzuki has been President of Suzuki for 26 years beginning in 1978. He developed the company’s strategy of opening new markets in the developing world and said that working in these countries is ten time more difficult than working in developed countries like the United States and Germany. While labor is cheap, the infrastructure is poor, energy cost are high and sale prices are low. Low education mean workers often have to be trained from scratch.

Suzuki is based in the Chubu region and 90 percent of its product development takes place there. In 2005, it sold 2.1 million cars, up 9 percent from 2004, and 3.65 million motorcycles.

Suzuki has a partnership with General Motors. During the global financial crisis in 2008 and 2009 GM sold a 3 percent stake in Suzuki to raise cash, with Suzuki buying back many of the shares. After GM filed for bankruptcy Suzuki said it would maintain its joint venture with GM but warned of massive losses.

Suzuki Overseas

Suzuki Motor Corp. sold 26,619 units, up 10.9 percent, in the United States in 2011

Maruti Suzuki is strong in India, Suzuki has a 40 percent share in India. In September 2011, Suzuki announced it was going to build a $1.3 billion plant in India.

In July 2012, riots at Maruit Suzuki plant left one dead and dozens injured. The plant in the northern Indian state of Haryana left two Japanese injured and resulted in a lockdown of the plant. [Ibid]

Suzuki in China

Suzuki sold about 300,000 cars in China in 2010 and around 350,000 in 2011. [Ibid]

“In November 2011, Kydo reported: “Suzuki Motor Corporation plans to build a new car factory in China, which will double the production capacity of its joint venture with Chang’an Automobile to 500,000 units a year. Chongqing Chang’an Suzuki Automobile announced recently that the company has started construction of its second manufacturing facility as it tries to overcome insufficiencies in production capacity. Currently the joint-venture has a production capacity of 200,000 units a year. [Source: Kyodo November 19, 2011]

“The new plant will be situated next to the current one in the city of Chongqing and will cost around 60 billion yen ($779 million) to build. The facility will reach its annual production target of 250,000 cars and 300,000 engines by 2015. The plant will be built in two phases, with phase one to be put into operation in 2013. By the time it’s completed, the facility is expected to generate sales revenue of $5 billion each year. [Ibid]

Suzuki Tie Up with Volkswagen

In December 2009, Suzuki and Germany’s Volkswagen announced a tie-up that made them the world’s automobile alliances. In the deal Volkswagen became Suzuki’s largest shareholder with the acquisition of 19.9 percent of Suzuki’s shares. In return Suzuki bought 2.5 percent of Volkswagen’s shares. One of the reason for the deal was to cooperate on electric and fuel cell vehicles and to combine Volkswagen’s established reputation and it position as the No. 1 car company in China with Suzuki’s success in emerging markets, its reputations for keeping costs down and it experience in making small, fuel-efficient engines. It is also the No. 1 car company in India. Volkswagen is the world’s third largest automaker. Its merger was part of goal to outperform Toyota and become the world’s largest automaker by 2018.

In 2010, the alliance had global sales of 9.37 million units (7.14 million for Volkswagen, 2.56 million for Suzuki). This easily eclipsed the 8.41 million units sold by Toyota Motor Corp. group, the world's No. 2.Under the deal, Volkswagen was supposed to provide Suzuki with environmentally friendly technology for hybrid cars and diesel engines, while Suzuki would transfer technologies for low-cost minicar production. The partnership was designed to enhance marketing cooperation in China and India, where both carmakers have performed well. However, they have little to show from their nearly two years together.

Suzuki tied up with VW to reduce its burden of investing in the development of eco-friendly cars--a field in which Suzuki lagged behind Toyota Motor Corp. and other rivals. Many of the world's automakers have been speeding up efforts to form business partnerships with other companies to cover their weak points in the development of next-generation eco-friendly cars. Only a few of them, such as Honda Motor Co. and Germany's BMW AG, maintain independent business strategies. Uwe Dreher, a BMW official in charge of EV brand market strategy, said it did not form such an alliance so it could maintain independence in management decisions.

Suzuki and Volkswagen End Their Partnership

In September 2011, Suzuki announced it was ending its partnership with Volkswagen. The capital partnership was launched with much fanfare in December 2009. But the alliance frayed--and eventually split--because the Japanese automaker became concerned it would lose autonomy. The relationship between Suzuki and Volkswagen broke down a response to how the German automotive giant saw its partner. Suzuki responded in anger after Volkswagen described it as an "associate", a term it felt was symptomatic of a domineering and haughty attitude by its supposedly equal partner. [Source: BBC, Yomiuri Shimbun, September 14, 2011]

Suzuki CEO Osamu Suzuki said, “I was disgusted with the tie-up...It became obvious that we can't hope to get the technological transfers we wanted. Fortunately, we can terminate the relationship at an early stage because no joint projects are in progress." He said his company "had had enough of the entanglements" brought about by the alliance. Volkswagen's public relations department initially said the automaker will continue to hold Suzuki shares and was still interested in cooperating with Suzuki. However, the Suzuki chairman said his company would not change its decision to abort the partnership.

In November 2011, the BBC reported: “Suzuki Motors has initiated arbitration proceedings against Volkswagen in a bid to buy back its shares from the German carmaker. Volkswagen bought a 19.9 percent stake in Suzuki in 2009, but relations between the two have since deteriorated.Suzuki ended its partnership with VW in September, after the latter accused it of breaking terms of their agreement. The German firm has said Suzuki has "no legal foundation" to force it to sell its shares. [Source: BBC, November 24, 2011]

Suzuki sought arbitration by the Paris-based International Court of Arbitration over its demand that VW, which is the largest shareholder in Suzuki, should sell its stock. "Suzuki Motor Corporation is today commencing arbitration proceedings in London with the ICC International Court of Arbitration, in order to compel Volkswagen AG to dispose of its Suzuki shares to Suzuki or Suzuki's designated third party," the Japanese carmaker said in a statement. "The arbitration proceedings follow Suzuki's termination of its alliance with Volkswagen AG on 18 November 2011, and Volkswagen AG's lack of response to Suzuki's requests for the disposition of its shares," Suzuki said. [Ibid]

“The partnership between Suzuki and Volkswagen was expected to be a win-win situation for both the carmakers. Volkswagen had hoped that it would provide a way for it to gain access to the fast-growing Indian car market, through Suzuki's prominent position in the country. The companies had also planned to co-operate on developing technology. However, despite all the plans no projects were launched even after two years of the deal being signed. [Ibid]

“The breaking point came after Suzuki decided to buy diesel engines from Fiat for its cars built in Hungary, a move that Volkswagen said was a breach of contract. At the same time, Suzuki accused Volkswagen of refusing to share advanced technologies with it. That led to Suzuki announcing an end to the partnership. The Japanese carmaker has since sought to buy back its shares. [Ibid]

“A VW spokesperson said the German automaker was deeply disappointed by Suzuki's seeking arbitration and was confused as to why it would do so. The spokesperson also reiterated VW's intention to continue holding shares in Suzuki. VW Chairman Martin Winterkorn said this month in an interview with a German financial newspaper that even if Suzuki's current management dislikes the partnership with VW, they may work with the next generation. “Some economists believe that because Suzuki Chairman and President Osamu Suzuki is 81 years old, VW may be able to improve the relationship after he retires. But Chairman Suzuki has said, "I can't run from enemies," indicating his intention to stay in the post until the dispute is resolved. [Source: Takeyuki Hitokoto and Yoichiro Kagawa, Yomiuri Shimbun, November 26, 2011]

Suzuki Vehicles

In January 2010, Suzuki announced it would develop hybrids and electric cars.

Suzuki and Daihatsu sell about the same number of minicars in Japan each years: around 600,000 vehicles each. The best selling minicars in 2004 were: 1) the Suzuki Wagon R, 2) the Daihatsu Move, 3) the Honda Life, 4) Suzuki Alto and 5) Daihatsu Mira.

Suzuki’s made a profit in fiscal 2008-2009 but the profit dropped b 65 percent from 2007-2008.

Suzuki has much higher sales abroad than in Japan and the gap is widening. Suzuki has done well marketing small vehicles used in rural areas in Third World countries. It sells cars in 144 countries and has plants in 23 countries. It is the top seller in Hungary, India and Pakistan and has manufacturing plants in many Southeast Asian nations.

Suzuki has been the top seller of Minicars in Japan for 32 years in row. The Suzuki WagonR was the top selling vehicle in Japan in 2004, 2005, 2006, 2007 and 2008. It sold 212,000 units in 2004, 224,082 units in 2007 and 208,494 in 2008

Suzuki has developed a fuel cell car with GM and an air-cooled, fuel-cell motorcycle and introduced the first hybrid minicar, a twin-seat vehicle that has a 660cc engine and gets 34 kilometers per liter and is only 2.7 meters in length.

In November 2012, Suzuki announced a new mini-passenger car model, Alto Eco, with engines that the company developed on its own. The model gets a maximum of 30.2 kilometers to one liter of gasoline, the best among gasoline-powered cars even under the new standard of fuel efficiency measurement. Automobile commentators said the new model demonstrates that Suzuki can develop eco-friendly cars on its own. [Ibid] Image Sources: Suzuki

Text Sources: New York Times, Washington Post, Los Angeles Times, Daily Yomiuri, Times of London, Japan National Tourist Organization (JNTO), National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2009 Jeffrey Hays

Last updated October 2012

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