Shaky VW-Suzuki alliance may scuttle India story

With tension brewing between Volkswagen and Suzuki, the India script for this global alliance may just turn awry.

Nearly 20 months ago, VW and Suzuki got into an equity crossholding deal which promised plenty. The German carmaker was hopeful that it would translate into a slew of compact cars for India while Suzuki was guaranteed access to its ally's large array of diesel engines. Over the last few weeks, it is getting increasingly apparent that the duo is tiring of the partnership which has yielded nothing on the ground yet.

According to auto industry observers, it may be a tad premature to write an epitaph though the spark is clearly missing. Media reports have cited a cultural mismatch as the prime trigger.

As far as India is concerned, Suzuki (via Maruti) remains a force to reckon with in the small car segment. Its growing need for diesel engines is expected to be met by Fiat from its Ranjangaon plant near Pune, which clearly means that VW's services are not required in this department.

Does this signal the possibility of a new alliance emerging between Suzuki and Fiat? Speculation has been rife that the two will now team up for diesel engines and also pool their skills in fuel-efficient compact cars, the road for the future.

With Chrysler also in its kitty, it will be interesting to see how Fiat leverages Suzuki's presence should this turn into an equity-based partnership.

From VW's point of view, a separation with Suzuki may be of little consequence even in markets like India where it is a relatively late entrant.

The German carmaker has been investing heavily in building its brand here and is generating good numbers for its Polo and Vento cars. It would also be looking at a long-term strategy where recent acquisitions like MAN will play a key role in India's commercial vehicle segment.

Incidentally, Fiat and Suzuki had a common ally in General Motors, although at different points in time.

The relationship between GM and Suzuki was so strong at one point that it was widely thought that the former would have a strong role in Maruti. Mr Osamu Suzuki, Suzuki Motor Corp Chairman, had hinted in 2000 that GM would be the natural ally in India by virtue of its (then) 20 per cent stake in his company.

Govt stake

Then, the Indian Government was a prominent stakeholder in Maruti and it was assumed that GM would step into this role once the company was privatised.

Events took a dramatic turn soon thereafter when Daewoo was up for sale and GM snapped it when Ford, originally the highest bidder, backed out.

GM and Suzuki subsequently ended their promised alliance for India and parted ways at a global level too.

As in the case of Volkswagen -Suzuki, a lot was expected from the alliance between GM and Fiat which had a similar crossholding model. Nothing came of it eventually and the divorce was inevitable.

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