Was the Suzuki-Volkswagen partnership doomed to fail from the beginning?

Monday's papers carry multiple reports on how Volkswagen AG and Suzuki Motor Company (SMC) are looking to go their separate ways (Wall Street Journal and Reuters). As a journalist covering Maruti-Suzuki India Limited (MSIL), the Japanese company's immensely successful subsidiary in India and having met with senior SMC officials in the past, I do not believe that this is a surprise. After all, Osamu Suzuki did write a blog post on the matter in July, available translated here at the TTAC blog.

Osamu Suzuki might be an octogenarian as well as someone who married into the Suzuki family and took up the family name - an old tradition in Japan- but he is fiercely independent.

Although, his all-too-rare press briefings in India do often lead to massive 'Lost In Translation' moments - like the one in Delhi in 2008, where he revealed the workings of a yet-not-finalised pact with Nissan. So, it is not surprising that MSIL Managing Director Shinzo Nakanishi jumps in whenever Osamu Suzuki answers questions directed at him.

I remember a press briefing at the Maurya Sheraton where Osamu Suzuki met with a few print journalists covering the auto beat. There were about six of us, if I remember correctly. To cut a long story short, the man was extremely evasive other than on one question I remember asking him - about his age and whether he should retire, to which he answered an emphatic no. Interestingly, Suzuki had groomed his son-in-law Hirotaka Ono to succeed him. Unfortunately, Ono died of pancreatic cancer (incidentally, the same that afflicted Steve Jobs of Apple) which forced Suzuki to return as chairman of the company.

After returning as chairman, Suzuki has been hyper-active, buying out the Indian government from MSIL and making his car designers less conservative - a move that led directly to the Suzuki Swift, a car which has been feted by enthusiasts across the world.
And when General Motors sold their decade-old stake in SMC back to the Japanese company in the wake of the American car company's bankruptcy, it led German car company Volkswagen to buy a stake in SMC.

Now, one unspoken line of thinking that some analysts predicted the German car company had was to buy out SMC, a family-owned company where there is no clear successor at the top. However, in light of current events, Volkswagen seems to have pushed matters too far ahead by classifying SMC as a company where they can 'influence' decision-making.

At every MSIL press-conference, executives are evasive about answering questions on potential partnership opportunities with Volkswagen, and Volkswagen management in India admit privately that they only meet with MSIL executives at automotive conferences.
Volkswagen has a clear aim of being the world's largest carmaker by 2018 and SMC, if acquired, will play a major part in that, thanks to their majority ownership of MSIL.

With Maruti continuing to command a 50 per cent share of the Indian passenger vehicle market, which is expected to become the world's third largest within a few years, Volkswagen, if they manage to acquire SMC will be helped to the top just on that basis.

But, by putting their difference out in the open, Volkswagen and SMC are admitting they have hit a rocky patch. And as fiercely independent as Osamu Suzuki might be, and even with MSIL in their stable, it is doubtful that Suzuki can survive as an independent company like the likes of BMW AG. Suzuki knows they need a partner, but pissing them off will not work. And Volkswagen knows that they need to acquire to grow, but they also need to realise that arrogance has its limits.

Postscript: After the Nikkei pummeled the SMC scrip, the company issued a denial to the stories.