Tokyo: Suzuki Motor Corp. wants to end its two-year-old alliance with Volkswagen AG after the German car maker accused it of violating their partnership pact by agreeing to a diesel engine deal with Italy’s Fiat SpA.
An exit by Suzuki would end an alliance forged in December 2009 that was billed as a partnership of equals to bolster Volkswagen’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.
Suzuki chairman and chief executive officer Osamu Suzuki on Monday offered to buy Volkswagen’s 19.9% stake in his company with cash on hand, and in return promised to offload its 1.5% stake in Volkswagen back to its estranged German partner.
Volkswagen bought its Suzuki stake for €1.7 billion (Rs10,830 crore today) in 2009 as part of a strategic partnership with the maker of the Jimmy and Grand Vitara. The holding is now worth around $2.2 billion (Rs10,340 crore), while Suzuki’s Volkswagen stake is worth about $950 million.
The move comes after two months of squabbling between the two companies, with Suzuki accusing Volkswagen of wanting to bring the Japanese auto maker under its control and Volkswagen trying to make amends by promising it would not encroach on Suzuki’s independence.
It is the second setback for Volkswagen in as many weeks after it had to push back a planned merger with Porsche AG beyond the end of 2011 because of legal issues.
The partnership with Suzuki has so far been beset with problems and failed to deliver any meaningful progress for either company.
“We don’t have any projects in the works from the alliance,” Suzuki’s chairman said at a press briefing in Tokyo. “We will try to ensure a harmonious parting.”
In a separate statement, Volkswagen said it had no intention of selling the shares and asked that cooperation between the two continue. Analysts said they believed that Volkswagen would not have a choice in the matter.
“As Suzuki has already offered a termination of the cooperation, we can’t really see Volkswagen moving ahead with the alliance or even increasing its grip on Suzuki and thus forcing the company into a deeper cooperation,” Munich-based UniCredit Group analyst Christian Aust said. “We expect Volkswagen to dispose of its stake in the medium term.”
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 plans 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 vehicles) 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 the Japanese company to source diesel engines from Fiat hurt cooperation.
Volkswagen was annoyed that Suzuki stuck with long-time engine partner Fiat late in June when picking it to supply its Hungarian-built SX4 crossover with a 1.6-litre diesel engine.
“A break-up with Suzuki would be bad for Volkswagen,” Ferdinand Dudenhoeffer, head of the Centre for Automotive Research at the German University of Duisburg-Essen, said on Monday. “Despite its many brands, Volkswagen so far has no real competence in the rapidly growing low-cost car segment.”
Volkswagen has been juggling several deals at once—the Suzuki alliance, a Porsche merger, and plans to combine the truck-making business of MAN SE and Sweden’s Scania AB. None of them has been seen as a shining success.
Ahead of its announcement, Suzuki shares closed down 2.8%, compared with a 2.3% dip in the benchmark Nikkei 225 index.
Volkswagen shares were down 3.6% at 12.43 GMT.
Suzuki’s deal with Volkswagen is not the first time the Japanese car maker has tied itself to one of the big global auto makers.
In 1998, Suzuki entered into a strategic partnership with General Motors Co., which took a 17.4% stake in the Japanese firm.
That alliance began to unravel in 2006 when the US car company sold most of its stake as it scrambled for cash amid ballooning losses.
Other unsuccessful combinations have included Germany’s Daimler AG and Detroit-based Chrysler Llc, which ended during the financial crisis. DaimlerChrysler’s partnership with Mitsubishi Motors Corp. ended in 2005 after five years.