Suzuki issues a rebuttal letter to VW

Suzuki Motor Corporation (“Suzuki”), has sent a letter to Volkswagen AG today, countering the allegations stated in the notice dated 11 September 2011 from Volkswagen AG to Suzuki regarding an alleged breach of the Framework Agreement (i.e., a notice stating that Suzuki is in breach of the Framework Agreement) in the name of Mr. Osamu Suzuki, Chairman and CEO, and addressed to Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen AG.

Volkswagen AG alleged that Suzuki is in breach of the Framework Agreement based on Suzuki’s purchase of a diesel engine manufactured by Fiat Powertrain Technologies S.p.A. (“Fiat”) and notified Suzuki of a certain period of time to take remedial action.

As we explained at the press conference on 12 September, we definitively state that Suzuki has never been in breach of the Framework Agreement.

We will not disclose in detail the statements made in the rebuttal letter which we have sent since they relate to discussions between Suzuki and Volkswagen AG, however, a portion of our counterarguments is as follows.

Last year, both companies negotiated for several months regarding the conditions for Suzuki’s use of certain engines manufactured by Volkswagen AG, however, Suzuki’s requirements were never satisfied. In January of this year, when Mr. Osamu Suzuki conferred with Dr. Winterkorn in Hamamatsu, Suzuki delivered its message that Suzuki would not be using Volkswagen diesel engines together with background reasons. In response to such explanation, Dr. Winterkorn requested Suzuki to issue a written notification if Suzuki decided not to use diesel engines manufactured by Volkswagen AG. Within a couple days of such request, we formally notified Volkswagen AG of such decision in writing. Immediately after issuing such notice, engineers from both companies who are responsible for this matter also mutually confirmed with each other that Suzuki will not use diesel engines manufactured by Volkswagen AG.

Volkswagen AG has requested Suzuki in the mentioned notice to implement a process to compare the diesel engines manufactured by Volkswagen AG and by Fiat as a remedial action. We believe it is clearly unreasonable for Volkswagen AG to claim on 11 September that Suzuki is in breach of the Framework Agreement based on presumption that this process is deficient, after a considerable amount of time has passed since Suzuki and Volkswagen AG mutually confirmed that Suzuki would not be using such engine.

In addition to the above, we have fully expressed our views in the rebuttal letter which we have sent today and have included references to the factual background of this matter including negotiations that occurred before the execution of the agreement which established the alliance on 9 December 2009, and detailed quotations from letters exchanged between the two companies.

Since Suzuki’s global reputation has been significantly damaged by the announcement made by Volkswagen AG, we have requested Volkswagen AG to revoke its notice claiming that Suzuki is in breach of the Framework Agreement and to publicly announce such revocation by 30 September.

Suzuki’s Chairman & CEO Osamu Suzuki said today as follows:

This partnership started by an approach from Volkswagen. The German company requested us to have them acquire our shares to some extent in order for them to enable technology transfer to Suzuki, which is our major purpose of this cooperation. We also purchased some Volkswagen shares.

However, we gradually realized that only with the minor shareholding by Volkswagen, 19.89%, Suzuki cannot have the initially promised access to their technology in reality.

Patiently, we continued effort to materialize cooperation, which will be win-win for both companies. However, this partnership does not bring us benefits we expected but turned out to be a “ball and chain” for our managerial independence.

On September 11, Volkswagen AG sent us a notice alleging that Suzuki committed a severe breach of our Agreement and published it through their press release. This again became our new “ball and chain.”

Suzuki never breached our Agreement. Volkswagen’s notice and press release hinder our effort to develop attractive new products and significantly disparage Suzuki’s honor.

I think you can share my view why Suzuki would like to dissolve partnership and cross-shareholding relationship with Volkswagen AG.