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Suzuki and Volkswagen officially split

Fruitless collaboration: Volkswagen was planning to benefit from Suzuki's experience in emerging markets with vehicles such as the Maruti Alto 800, in return for efficient small car powertrain know-how.

Volkswagen to dispose of Suzuki shares at conclusion of court battle

31 Aug 2015

THE axe has finally fallen on a troubled four-year relationship between Volkswagen Group and Suzuki, after an international court ordered the German automotive giant to sell its shares in the Japanese company.

The decision ends an alliance between the two parties that was originally struck to share technology and market knowledge, but after a problematic four years the collaboration had failed to produce any results.

While arbitrators at the proceedings lead by the International Court of Arbitration in London deemed Suzuki's actions to terminate the contract in 2011 to be valid, the court found the company had breached contractual obligations.

According to the hearing, Suzuki prematurely broke off an ongoing discussion in early 2011 which could have given Volkswagen the right to provide the company with diesel engines.

Subsequently, Volkswagen may pursue Suzuki for the losses associated with the early cessation of cooperation.

Volkswagen owns a 19.9 per cent stake in Suzuki, but will now seek to dispose of the shares following the tribunal and in doing so, will complete the termination of the partnership.

The German company is optimistic of the future without Suzuki and said the split is good news for its business operations.

“We welcome the clarity created by this ruling,” it said in a statement. “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.”

The joint-venture was conceived in late 2009 when the two companies first agreed to work together on a new efficient but affordable vehicle for emerging markets.

Suzuki's part of the bargain would have brought insight into developing markets, while Volkswagen's experience with small efficient engines was intended to provide the basis for the powertrain.

Volkswagen acquired its share in Suzuki at the signing of the contact, while the Japanese company also bought 1.5 per cent of VW, but it is unknown if Suzuki must return its share.

Suzuki is reportedly satisfied with the ruling.

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