Suzuki wants out but VW may choose not to exit

Suzuki could have decided to call it quits with Volkswagen but it remains to be seen if the latter is ready to relinquish its 19.9 per cent stake.

Indications are that VW is in no hurry to exit, which means that it could even look at gradually increasing its stake in Suzuki. The company also made it known on Sunday that it was serving notice on its Japanese ally on an ‘infringement' relating to the ‘supply of diesel engines produced by another manufacturer'.

Fiat issue

The reference is clearly to Fiat, which has entered into an agreement with Suzuki to supply its 1.6 litre diesel engines for use in the SX4 in Hungary. Likewise, in India, Fiat will meet Maruti-Suzuki's needs of the 1.3-litre Multijet diesel engine from its Ranjangaon plant near Pune.

It is a moot point the VW notice will lead to a legal issue with Suzuki, which will, in that case, only prolong the divorce proceedings. In the meanwhile, the German automaker could just choose too hold on to its stake which it had acquired for $2.9 billion in December 2009.

Suzuki and allies

Should the script head in this direction, it will mark a tough road ahead for Suzuki which, till a little over a decade ago, was firmly committed to General Motors as an ally. It was an easygoing relationship and GM was tipped to play a key role in Maruti once the Indian Government exited the joint venture with Suzuki.

The acquisition of Daewoo changed all that and though Suzuki also had a stake in the newly created GM Daewoo, it was clear that its once-favoured American partner would not play a role in India. GM also divested its entire 20 per cent stake in Suzuki, which has, likewise, exited the now rechristened GM Korea.

Parting ways

Coming back to the present scenario, observers believe that VW will be a tougher rival to contend with. “If it decides to hold on to its stake, there is not much Suzuki can do,” they said. And even while there could be no basis to the controversy, a legal twist to the diesel engines issue will only prolong matters unless VW decides to part ways quickly with Suzuki.

Prior to the Maruti privatisation, the Indian Government and Suzuki have had their share of issues in the late-1990s. The Japanese automaker also had a two-wheeler joint venture with the TVS group for over 15 years which, going by the industry grapevine, had its share of hiccups. The two finally parted ways in 2001.

Ideally, Fiat could be the next ally for Suzuki but for this to happen, VW should first agree to exit the jinxed alliance. If it chooses not to, the stage is set for an interesting tug-of-war in the coming months.

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