Volkswagen and Suzuki part ways

A ruling in London has found in favour of Volkswagen, ending a dispute between the German manufacturer and Suzuki.

The tribunal arrived at its verdict that VW had met its contractual obligations to Suzuki under the terms of a cooperative agreement that is now terminated. Suzuki, however, has been in breach of its contractual obligations within the same agreement, the tribunal decided.

With this finding, Volkswagen has announced it will sell its 19.9 per cent share in Suzuki, and expects the German conglomerate's liquidity will improve as a consequence. Furthermore, the tribunal has indicated that Volkswagen is entitled to seek damages against Suzuki for the breach of contract. Suzuki has the right, the tribunal observed, to terminate the agreement with Volkswagen, provided Volkswagen receive reasonable notice.

At the end of 2009, the two companies had entered into the cooperative agreement, which would have seen them collaborate on the development of environmentally-friendly small cars for the budget end of the market. Additionally, VW and Suzuki planned to share resources boosting their respective brand profiles and sales in emerging markets. As part of the deal, Volkswagen acquired a 19.9 per cent stake in Suzuki and Suzuki purchased a 1.5 per cent stake in Volkswagen.

Less than two years later, Suzuki initiated proceedings against Volkswagen in London. As we reported at the time, trust between the two companies broke down when Suzuki opted to buy diesel powerplants from Fiat, and claimed that Volkswagen was attempting to strip Suzuki of its independence.

The tribunal has agreed with Volkswagen that Suzuki committed an infringement of the agreement when it ended a cooperative project around the commencement of 2011 and "failed to give Volkswagen last-call rights for the delivery of diesel engines", as VW explained it in a press release issued today. 

From that same press release, Volkswagen "reserves the right to claim damages against Suzuki".

It's largely a resounding blow for Suzuki, which initiated the legal proceedings in the first place, although the tribunal admits Suzuki is clear to exercise its right to end the contractual arrangement with Volkswagen.

"We welcome the clarity created by this ruling," Volkswagen stated in its press release. "The tribunal rejected Suzuki's claims of breach and found that Volkswagen met its contractual obligations under the cooperation agreement.

"Nevertheless, the arbitrators found that termination of the cooperation agreement by Suzuki on reasonable notice was valid, and that Volkswagen must dispose of the shares purchased. This decision is based on the principle that a contract may be terminated upon reasonable notice. Volkswagen expects a positive effect on the Company's earnings and liquidity through the sale of the Suzuki shares."

Prior to Suzuki, Volkswagen had attempted to forge an alliance with Proton, which was owned by the Malaysian government at the time. Unlike the Suzuki agreement, the VW/Proton agreement never even looked like getting off the ground.