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Volkswagen Group, Tata end talks on emerging markets tie-up

Reuters  |  BERLIN 

By Andreas Cremer

(Reuters) - talks between Germany's Group and India's about joint development of a car for emerging markets have ended amicably, the two companies said on Thursday.

The collapse of the talks is a further blow to Volkswagen's (VW) efforts to develop a cheap vehicle platform for Asian markets, after an earlier alliance with Japan's Suzuki Motor Corp also fell apart.

In March and VW announced a Memorandum of Understanding (MoU) for a long-term partnership to explore joint development of products for customers in and other markets.

The German group's Czech arm Skoda, commissioned by VW to lead the talks with Tata, was exploring a possible entry-level car platform together with the Indian manufacturer, using Tata's AMP vehicle platform as a basis, a VW group source said.

Skoda dropped the idea of developing the AMP platform on fears that it would need significant further investment to meet future crash-test and engine emissions requirements and would instead explore parent VW's MQB platform for possible further savings, said the source, who declined to be named.

"The two companies have come to the conclusion that at the present point of time the technical and economic synergies cannot be realized in the desired way," Skoda said on Thursday, confirming a story.

"We have evaluated the technical feasibility and degree of synergies for the envisioned partnership. We have concluded that the strategic benefits for both parties are below the threshold levels," said Chief Executive Guenter Butschek, the German automotive and aerospace industry veteran who joined the Indian company last year.

But the two automakers, which also studied joint development of components, did not rule out the possibility of collaboration in the future after holding what Skoda called "constructive talks" over the past five months.

VW shares closed 0.7 percent lower at 127.15 euros. shares plunged 9 percent to 380.20 rupees, after the company reported lower than expected first-quarter results.

Foreign carmakers like VW, General and Fiat Chrysler have struggled in where more nimble rivals such as Maruti Suzuki and Hyundai Motor have cornered two thirds of the market. Tata, which is also struggling to boost sales, has been trying to turn round its loss-making domestic business by modernising its products, improving efficiency and streamlining its organisation. In May, General said it would stop selling cars in from the end of this year, drawing a line under two decades of battling in one of the world's most competitive markets where small cars make up the bulk of sales. is expected to become the world's third-largest car market by 2020 but passenger vehicle sales have slowed in recent months due to policy changes and a new nationwide sales tax.

In 2009 VW attempted to break into the low-cost car market in by forging a tie-up with Suzuki Motor Corp but the deal failed due to cultural and business differences and was ended in 2015 following a fierce legal dispute.

The German group is looking for new overseas markets as it struggles to draw a line under its emissions scandal. In China VW has been working with joint venture partner FAW on an economy car and is planning to build affordable electric vehicles with JAC Motor from next year.

"We haven't been able yet to claim a share of the booming business with cheap small cars and means another setback in that respect," a senior VW brand manager told "But VW has changed a lot structurally since the Suzuki debacle, so we'll keep trying."

The breakdown of talks with was mainly for economic reasons rather than differences over control, as the AMP architecture turned out to be too expensive, the VW source said.

A push by VW group headquarters to decentralize power after the dieselgate scandal and assign greater responsibilities to the individual brands and business regions for vehicles and technology will help VW find the right partner, the manager said, without being more specific.

(With additional reporting by Aditi Shah in New Delhi; Editing by Georgina Prodhan, Greg Mahlich)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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