After the Breakup: The Troubled Alliance between Volkswagen and Suzuki
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
About the Industry
Since 2009, there had been a decline in auto sales worldwide due to the economic crisis. This had prompted global carmakers to form partnerships and alliances to save billions and develop state-of-the-art powertrains. For instance, Europe's second-biggest carmaker, PSA Peugeot Citroen, and Japan’s Mitsubishi Motors Corp. formed a strategic partnership involving an equity investment. Industry experts saw this pair-up as a union of the weak, to strengthen their positions in the global automobile industry. Carmakers were also shifting their investments to emerging markets which had withstood the economic slump...
The Suzuki-VW Partnership
In its annual report of FY2009-2010, VW said that it intended to position itself as a global economic and environmental leader among automobile manufacturers and termed it as 'Strategy 2018'. Through this strategy it aimed to be the most successful and fascinating automaker in the world by 2018, using intelligent innovations and technologies to deliver customer satisfaction and quality, increase unit sales to more than 10 million vehicles a year, and capture major growth markets. In line with the global trend of alliances and its own goals of becoming the world's biggest automaker, VW joined the flurry of realignments and alliances and discussed a partnership with Suzuki in June 2009...
The Rationale for the Alliance
VW entered into this partnership to tap Suzuki's strengths in small cars and its dominance in the fast-growing Indian market apart from allowing the automakers to pool management resources, share auto parts to cut down production costs, and jointly develop the next generation of fuel-efficient cars. However, the companies were not in favor of the idea of sharing dealership or service center space. Industry analysts expected that the VW-Suzuki combined vehicle sales (3.265 million and 1.15 million in the first half of 2009) would easily take the numbers above Toyota's (4.415 million). "Together, we can maximize our opportunities for growth. In partnership with Suzuki, the Volkswagen group can take a big step forward in the compact car segment, particularly in the emerging markets in Asia...
A few days after the two companies announced their tie-up, VW sought to leverage on its partner's R&D facility to jointly work on hybrid and electric car projects. Jochem Heizmann, VW board member responsible for production, said, "It's too early to give out concrete details of our plans, but what is definite are common projects on hybrids and electro mobile cars. VW can offer hybrids and electric technology. Suzuki also has a fuel cell technology program going on at its end." They planned to develop cars together under both brand names and expected their first car - using parts from both manufacturers - to be introduced by the end of 2010. VW also intended to supply diesel engines to Suzuki in the future. The partnership also spurred some interesting thoughts of a VW motorcycle coming to fruition...
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