Suzuki seeks divorce from Volkswagen over Fiat spat


  • Business
  • Monday, 12 Sep 2011

TOKYO, Sept 12 (Reuters) Suzuki Motor is seeking to end its two-year-old alliance with Volkswagen after the German carmaker accused it of violating their partnership pact by agreeing a diesel engine deal with Italy's Fiat .

Suzuki will ask Volkswagen to sell its 19.9 percent stake in the company, the Japanese firm said in a statement to the Tokyo Stock Exchange on Monday. In return, Suzuki said it will offload its 1.5 percent stake in Volkswagen.

In a separate statement, Volkswagen said it had no intention of selling the shares and asked that cooperation between the two continue.

An exit by Suzuki would end an alliance forged in December 2009 that at the time was billed as a partnership of equals to bolster VW's presence in India for small cars and give Suzuki access to hybrid and diesel technology it could not afford to develop on its own.

"I don't think there is any immediate impact, but over the long term, this could be a big problem because to develop very good or efficient diesel or hybrid EV by itself is going to cost the company (Suzuki) an enormous amount," said Koji Endo, senior analyst at Advanced Research Japan in Tokyo.

"Suzuki might start looking at some other options, including finding a new partner, but at this point, it seems the candidates are very limited," Endo said. Suzuki's divorce filing comes after Volkswagen said on Sunday a deal by Suzuki to source diesel engines from Fiat hurt cooperation.

While annoyed with its Japanese ally, Volkswagen said earlier it would keep the stake it bought in December 2009 for 1.7 billion euros ($2.3 billion) as part of a strategic partnership with the maker of the Jimmy and Grand Vitara.

Volkswagen said it would give Suzuki several weeks to remedy the infringement. This "does not mean the end of the partnership," a Volkswagen spokeswoman said on Sunday.

VW is annoyed that Suzuki stuck with longtime engine partner Fiat late in June when picking it to supply its Hungarianbuilt SX4 crossover with a 1.6litre diesel engine.

Suzuki has been buying 2.0litre diesel engines from Fiat Powertrain Technologies since 2006 for the SX4, manufactured in Esztergom together with the Fiat Sedici, which shares the same underpinnings.

Ahead of its announcement, Suzuki shares closed down 2.8 percent at 1,484 yen, compared with a 2.3 percent dip in the benchmark Nikkei 225 index.

Volkswagen shares were down 1.9 percent at 101.75 euros at 0727 GMT.

Suzuki said its chairman would hold a news conference at 0800 GMT.

STALLED PARTNERSHIP

After agreeing to cooperation in 2009, VW and Suzuki have no joint projects and relations have headed south. Suzuki in July insisted there was a "need to return to the starting point, including the ownership ratio."

Suzuki Chief Executive Osamu Suzuki signalled his unhappiness over the deal in a July 1 blog in Japan's leading business daily, Nikkei.

Suzuki's ire worsened when VW classified it as an associate to be carried at equity an accounting term typically reserved for holdings of at least 20 percent where VW can "significantly influence financial and operating policy decisions."

"It is there, in written form, and it is being explained this way to their shareholders. This came as a complete shock, and we struggle to see how they are influencing us in any way," Executive Vice president Yasuhito Harayama, in charge of relations with VW, told reporters in July.

The deal with Volkswagen is not the first time the Japanese carmaker has tied itself to one of the big global automakers.

In 1998, Suzuki entered into a strategic partnership with General Motors , which took a 17.4 percent stake in the Japanese firm.

That alliance began to unravel in 2006 when the U.S. car company sold most of its stake as it scrambled for cash amid ballooning losses.


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