Suzuki gets last laugh, and vindication, on failed VW partnership

TOKYO -- Suzuki Motor Corp. executives can’t help but feel some sense of vindication at the unraveling of former partner Volkswagen over its diesel dupe.

After all, it was VW’s backbiting over diesel engines that helped torpedo their ill-fated tie-up that was officially unwound this month after four years of bitter arbitration.

VW incensed Suzuki when it accused the Japanese carmaker of breaching their alliance agreement by continuing to buy diesel engines from Fiat, rather than VW.

Now diesels are coming back to undermine the same VW management that complained.

The diesel dispute with Suzuki cropped up in June 2010, less just seven months after the two companies inked their partnership, according to internal Suzuki documents.

A month earlier VW outlined four small diesel engines it could offer for use in India, and both sides said they would study localizing engine production there.

They also planned to study deploying a VW diesel in the Suzuki Swift compact. But that would have to wait until the Swift’s redesign on a new platform in 2016 because the VW engine’s rear exhaust layout didn’t fit the current version, according to the documents.

Amid all this, VW complained that Suzuki was still buying from rival Fiat.

Talks eventually expanded to cover Suzuki possibly buying a 1.6-liter diesel engine from VW. Suzuki said it made a formal inquiry about the development costs of the VW power plant in November 2010. “But there was no answer,” the Suzuki documents said.

The following January, Suzuki decided not to buy the engines after all.

By September 2011, VW was publicly blasting Suzuki for breaking their accord.

Fiat engines

But, according to Suzuki’s side of the story, it had requested from the very start of negotiations with VW that it be allowed to keep sourcing some diesel engines from Fiat.

“Suzuki wants to continue with Fiat on account of this engine’s emissions handling, improvements and other factors,” Suzuki wrote in one document entitled “Items We Want to Incorporate into the Cooperation Agreement with VW.” Suzuki was also upfront about intending to use Fiat’s 1.6-liter diesel until the next-generation SX4 was launched.

In a 2011 meeting with VW executives, Yasuhito Harayama, then a managing officer and now Suzuki’s vice chairman, said Suzuki was leery of VW’s trying to exert management control over Suzuki. Indeed, the Japanese company was pulling back on projects partly to maintain independence and not be beholden to the German giant, Harayama said.

“We stopped the use of VW’s 1.6-liter diesel because we don’t want to be controlled,” Harayama told then-VW Vice President Hans Demant, according to notes of the meeting.

Dodging a bullet

In retrospect, it seems Suzuki may have unwittingly dodged a bullet.

But its sparring with VW over corporate control, breached contracts and lack of transparency gave Suzuki a peek at a more shadowy VW that has now come to light, amid its admission that it rigged emissions testing on some 11 million diesel vehicles worldwide.

At Suzuki’s Aug. 30 press conference to announce that international arbitration had supported Suzuki’s demand that VW sell its 19.9 percent stake in his company, Chairman Osamu Suzuki took a sideways swipe at his erstwhile German partner.

“The past six years have been a very valuable experience,” he said in a veiled criticism of VW’s business ethics. “I came to realize there are companies different from us.”

Suzuki didn’t elaborate, but he had clearly seen something he did not like.