Suzuki calls off 2-yr relationship with Volkswagen

Suzuki Motor Corp on Monday said it wanted to dissolve its alliance with Germany’s Volkswagen AG, putting an end to the two-year-old cooperation.

Just a day after Volkswagen alleged the Japanese company had infringed an agreement by purchasing diesel engines from Fiat for its plant in Hungary, Suzuki demanded Volkswagen offload its 19.89 per cent holding in it. The Japanese car maker will do the same with its 1.5 per cent stake in the German company.

In a sternly worded press statement, the Japanese company said, “Suzuki hereby announces that its board of directors has officially determined on Monday dissolution of the comprehensive partnership and the cross-shareholding relationship with Volkswagen AG. Suzuki thinks that it is crucial to secure independence in its operating policy decisions for maintaining its competitiveness in the domestic car market and other Asian markets, including India.”
 

THE OPPORTUNITIES

Maruti Suzuki could have utilised the diesel technology available with Volkswagen instead of depending on Fiat

Joint development of small cars for emerging markets and India; Volkswagen had limited knowledge of making low-cost, small cars

Use of common vendor base to reduce costs

Integration of distribution could have been possible, leveraging Maruti’s huge dealer base

THE REALITY

Maruti extended its tie-up with Fiat for diesel technology and is already looking at sourcing more engines from the Italian giant

No joint development project for small cars took off. Instead, Volkswagen entered the mass market with the Polo pitted against a Maruti Suzuki product

No discussions took place on joint vendor development

Integration was not a possibility as there were many competing cars. The Polo and the Vento competed with Maruti products

The breakdown of the deal would have numerous repercussions for both car makers who are key players in India. While nothing was put up formally to the board, executives in Suzuki’s Indian subsidiary, Maruti Suzuki, had identified some key areas of cooperation that were possible. One, it could get much-needed diesel technology, for which it was dependent on Fiat. The partners had also talked about putting up joint projects to make cars for emerging markets and one location could have been India.

Also, Volkswagen could have leveraged Suzuki’s ability to make low-cost small cars, in which it lacked expertise. That was possible through joint vendor development. Many industry experts say the German car maker could also leverage the large distribution network of Maruti Suzuki to sell cars in India.

Those in the know say Maruti’s budget hatchback ‘A-Star’ was on Volkswagen’s list as a probable hatchback for marketing in European markets. Further, Suzuki was to provide assistance to Volkswagen for its own small car called Up!.

Maruti Suzuki chairman R C Bhargava brushed aside talk of any impact of the breakdown of the alliance. “The alliance between the two was signed without our involvement or knowledge. Similarly, the notice to part ways has also been undertaken without our involvement. We had no knowledge of what was intended for us at all,” he said.

Speaking to Business Standard, John Chacko, Volkswagen Group chief representative, India, said, “There will be no impact of the break-up on Volkswagen’s India operation. Our plans for India will move ahead as planned earlier and there is no connection of it with Suzuki”.

Maruti Suzuki is in fact taking the relationship with Fiat a step further. Talks are on for Maruti to outsource engines from Fiat’s Ranjangaon plant (near Pune) to meet additional demand.

Volkswagen, with less than three per cent market share, is very small compared to Maruti, which has more than 40 per cent of the market. Maruti executives say Volkswagen is directly competing with it through the Polo and the Vento. The alliance had hit rock bottom after Volkswagen stated in its annual report it could “significantly influence financial and operating policy decisions” of Suzuki.