AppId is over the quota
AppId is over the quota
By Peter Nunn October 13, 2011
When the mighty Volkswagen Group acquired 19.9 percent of Japan’s Suzuki Motor Corp. in late 2009, it looked like the start of a well-conceived, entirely complimentary auto-industry tie-up: Suzuki, barely known in many regions yet an expert in developing inexpensive subcompact cars, would help VW penetrate third-world markets, particularly India, where Suzuki has a dominant position. Volkswagen could learn about how to make cars more inexpensively and leverage some of Suzuki’s existing low-cost production bases. And VW’s strong presence in China could help Suzuki gain a foothold in that fast-developing market, while VW shared its technology with the smaller company, too.
Volkswagen paid $2.5 billion for its initial stake in Suzuki, but it was widely believed that was only the beginning of what would amount to an eventual takeover, or at least VW quickly moving to acquire a controlling 33-percent interest in its new Japanese partner. Apart from the other advantages of sidling up to Suzuki, if Volkswagen absorbed the automaker, Suzuki’s nearly 3 million units of global production could help accelerate VW to its goal of becoming the world’s largest automaker by 2018.
Maybe it was too good to be true. Or maybe it was the infamous “culture clash” that has made a shipwreck of so many other trans-national automotive alliances. Whatever the case, the two companies had barely begun to work together when they discovered they didn’t like working together. A year after VW’s investment (Suzuki at the same time spent $1.1 billion to buy 2.5 percent of Volkswagen), Ferdinand Piech, chairman of VW’s management board, expressed displeasure that little of tangible value had yet come of the relationship. Tense words about the alliance came from both parties.
By this summer, the companies’ differences were expressed by Suzuki president Osamu Suzuki, who publicly bristled when VW management implied it could impose its will on the automaker. The 80-year-old Suzuki also wrote a blog that said in no uncertain terms his company had no intention in becoming subservient to VW. He added that he hadn’t seen anything of Volkswagen’s vaunted technology that was compelling enough to try to adopt immediately. The relationship has deteriorated from there, with VW charging Suzuki had infringed on the companies’ contract when it agreed to buy diesel engines – a VW pride – from Italy’s Fiat. Little more than a week ago, Osamu Suzuki called the partnership with VW a “ball and chain,” and openly spoke of Suzuki’s desire to dissolve the relationship. The company added that it intended to divest its Volkswagen stake if the agreement is dissolved, while VW maintained it does not intend to sell its nearly 20-percent holding in Suzuki.
Maybe this high-stakes dust-up could have been predicted. Suzuki is a car company accustomed to doing things its own way, reflecting the personality of its hands-on and independent president, Osamu Suzuki. Volkswagen apparently expected to tell Suzuki – the company and the president – how things would go. Suzuki apparently had no intention of it going that way.
Unconventional Thinking, Unconventional Company
The year is 1979. Japan’s Suzuki Motor Corporation is about to unveil a revolutionary new small car. Revolutionary in the sense it is to be an ultra-cheap, 550-cc minicar, selling for a bargain-basement ¥500,000 (at the time about $2,275) a price point no manufacturer had breached before. How to bring the price down? “How about we do away with the spare tire?” asks Osamu Suzuki, the project leader at a strategy meeting. The development team is dumbfounded. But the boss is ready with an even more radical solution. “What if we took out the engine?”
Obsessed with trimming the fat, as he sees it, Suzuki decrees: “Let’s try to build a vehicle for the same cost as one without an engine.” The result is the Alto, a tiny, get-you-around “kei” car which Suzuki, again bucking the system, sells in one grade, and for one price, all over Japan. While its relentlessly utilitarian design might not look like much today, the Alto, which was also purposely targeted at women drivers, was a big contemporary hit in Japan and through many generations. The Alto badge is still alive.
The success of the Alto propelled Osamu Suzuki to the presidency of the company and the intense, cost-down way it was developed still comprises part of Suzuki’s corporate psyche. Nobody else does small, basic cars – globally – like Suzuki. That’s one reason why the Volkswagen Group bought a 19.9% stake in the company in 2010, with one eye on controlling the market for new, small cars in India and other emerging markets. Others also flocked to Suzuki to tap into its small-car expertise. General Motors Co. is the best-known, but Nissan Motor Co. Ltd., Mazda Motor Corp. and Fuji Heavy Industries Ltd.’s Subaru all have sharing deals for today’s 660-cc kei cars in Japan with Suzuki. Fiat Auto in Europe and Maruti in India are two other significant names to leverage Suzuki’s formidable tiny-car know-how.
Low-Key, But With Surprises
Suzuki, suffice to say, is not your typical Japanese company. Somewhat reticent and at times mysterious, Suzuki, surprisingly, is Japan’s fourth-largest automaker after Toyota, Nissan and Honda and number nine in the world by production volume (building some 2.9 million units a year). It’s consistently profitable and for the latest fiscal year that ended in March, Suzuki posted a sizeable 56.2% jump in profits compared with 2010: ¥45.2 billion (some $553 million), although still some way off on its ¥80.2 billion haul for 2007-08.
There again, you’d never know. Suzuki maintains a low profile and operates with almost Masonic secrecy. Based out of Japan’s central Kansai area (not far from Toyota), Suzuki also has that typical local trait of knowing the value of a dollar and for years effectively was a one-man company, with the ever-characterful, razor-sharp Osamu Suzuki, now 81, occupying the company’s top chair as president. Yes, Suzuki might run a tight ship – but it’s also a company that pulls a few surprises. It was the first to target the vast Indian market back in the ‘80s and after years of basic, cheerless cars, Suzuki suddenly reversed course and launched two extraordinarily high-quality generations of the Swift compact car in 2005 and 2010. Those Swifts sadly have never figured in the U.S. market, but did wonders for raising Suzuki’s profile, especially in Europe.
Suzuki also moved slightly out of character to introduce the Kizashi sporty midsize sedan to market; it’s acquired a reputation for a fine ride and sweet handling – a kind of BMW-baiter despite the unassuming 2.4-liter 4-cylinder as its only engine choice. Suzuki then launched the Kizashi in Japan to special order only, while not spending a cent on advertising or promotion. As some might say: go figure. Many automakers in Japan spend big on fancy showrooms, but Suzuki prefers the simple, no-frills approach, sensible given that the bulk of its domestic sales are geared towards the inexpensive, high-volume minicars. The tactic seems to work just fine, handily saving the company millions.
Doing It Their Way
It is believed that Suzuki’s long time connection with GM, which began in 1981, was relatively stress-free because GM largely left Suzuki to its own devices and various model-sharing programs were limited to modest, econocar models such as the Geo Metro in the U.S. and Opel Agilia in Europe. No big waves from either partner.
The situation seems different with VW. It seems Wolfsburg had in mind the kind of relationship that Ford enjoyed with Mazda for many years, one in which the larger company gradually took over the smaller (weaker) operation, eventually assuming full control. That does not appear to be the kind of scenario Suzuki in any way had in mind with VW. Suzuki is still a scrappy company, a wily operator that continues to think outside the box. Uniquely, Suzuki also has its motorcycle, ATV and marine businesses as buffers to auto-industry gyrations – and is as determined as ever to have its own way of doing things. While it’s often seen to struggle in the U.S. market, Suzuki still is an outfit where from which one should expect the unexpected. There aren’t many companies like Suzuki around anymore, as VW is learning.
Peter Nunn: is a frequent contributor to AutoObserver.com.
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