Suzuki to sever ties with VW

  • Business
  • Tuesday, 13 Sep 2011

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

An exit by Suzuki would end an alliance forged in December 2009 that 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.

But the partnership has so far been beset with problems and failed to deliver any meaningful progress for either company.

Suzuki chairman and chief executive officer Osamu Suzuki offered to buy VW's 19.9% stake in his company with cash on hand, and in return, promised to offload its 1.5% stake in VW back to its estranged German partner.

VW agreed to pay around 1.7 billion euros (US$2.3bil) for the stake as part of a strategic partnership with the maker of the Jimmy and Grand Vitara. The stake is now worth around US$2.2bil, while Suzuki's VW stake is worth about US$950mil.

“We don't have any projects in the works from the alliance,” the Suzuki chairman said at a press briefing in Tokyo. “We will try to ensure a harmonious parting.”

In a separate statement, VW said it had no intention of selling the shares and asked that co-operation between the two continue.

“A breakup with Suzuki would be bad for VW,” motor industry analyst Ferdinand Dudenhoeffer said. “Despite its many brands, VW so far has no real competence in the rapidly growing low-cost car segment.”

The global auto industry has a chequered history of equity partnerships. Most have succumbed to pressure for companies to free up cash, if not ended in acrimonious failure. Suzuki said it planned to accelerate vehicle development 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 (electric vehicle) 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. - Reuters

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