It was the proverbial calm before the storm. For sometime now, Volkswagen and Suzuki had gone into silent mode after weeks of trading allegations. On Friday, the Japanese automaker fired the first salvo announcing its intent to terminate the two-year alliance.

Quite predictably, VW made it known that it had no intention of divesting its 19.9 per cent stake in Suzuki (which, incidentally, has 1.5 per cent in VW). Interestingly, it also reiterated it was under no pressure to do so considering that there was no ‘legal foundation'.

VW may consolidate position

“VW is not going to make things easy for its former ally. Neither is it going to be intimidated by the prospects of any intervention by the courts on the matter,” an industry official said. On the face of it, the only way out for Suzuki is to get a favourable verdict except that the wait could be quite long.

Till that time, VW will continue to be one of Suzuki's single largest shareholders, which may not be the most palatable option to the latter. Observers of the auto industry say the company is likely to look at strengthening its hold in the future by way of buying Suzuki shares from the market.

Acquisitions have been one of the biggest growth levers for VW, which has a host of brands in its kitty, a list that includes Skoda, Audi, Bentley, Lamborghini and Porsche as well as MAN and Scania in the commercial vehicle space. Suzuki would be the perfect plank to grow its presence in India, a market where it made a relatively late entry thanks to an extended China focus.

Suzuki and alliances

Suzuki will, of course, be in no mood to reciprocate and would much rather have VW off its back. It is not new to alliances – the last big one was with General Motors, which was tipped to last forever till Daewoo came into the picture and changed the script.

Within industry circles, the buzz is that Suzuki will seriously consider Fiat as an ally for the future. The two are already in the business of diesel engines, which raised VW's hackles especially when it had its own expertise to offer (Suzuki, of course, will contest this premise).

Quite unlike VW, Fiat does not seem to be in any tearing hurry to get its India operations on the fast track. For the moment, its priorities for the next three years are Brazil and Russia. India could well play an important role subsequently and this is where an ally like Suzuki could just make the difference.

Of course, all this will depend on VW which is in no mood right now to give up its equity in Suzuki. The tug-of-war has just begun and a clearer picture could emerge in the coming months.

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