Suzuki will remain the key to VW's race to top

As Volkswagen gears up to overtake Toyota and General Motors to become the world's largest carmaker in 2011, the relevance of Suzuki could be weighing on its mind.

Volkswagen (VW) will not be unaware of the fact that this calendar year was an aberration primarily due to the tsunami in Japan that hit Toyota's global production schedules. It is only logical to expect the Japanese automaker to be back on track in 2012 while GM will be as keen to retain its second spot.

VW has already made it known that it is striving to be the world's largest automaker by 2018, a goal that will also be driven by its other brands right from Audi, Porsche and Skoda to MAN and Scania. Given that new growth markets such as China and India have been key growth drivers this calendar year, VW will not be in any tearing rush to give up its 20 per cent stake in Suzuki.

It is no secret that relations between the partners are at an all-time low with the last few weeks having witnessed a furious exchange of charges. Things have been a lot quieter lately in comparison though it could just be the case of the proverbial calm before the storm.

While Suzuki is just waiting to break free of the alliance, VW has stuck to its stance of keeping its stake intact, at least for the moment. There are indications that this impasse could involve legal intervention which, in turn, could have a say in the German automaker's continuing presence in Suzuki.

Till this happens, VW is not likely to exit the partnership and will instead try to work out a working solution to ensure that duo stay together. This is absolutely crucial to the company's growth in India where Suzuki is the market leader. “At this point, this seems inconceivable with the kind of bad blood between the two allies but they could just end up burying the hatchet tomorrow,” an auto industry source said.

The more realistic possibility is VW digging in its heels and hoping to increase its stake in Suzuki gradually over time. Speculation was rife some weeks ago that a hostile takeover was on the cards but that story died a quiet death. There is no telling, though, if this could actually end up being a reality in the near future.

Consolidation is the name of the game in the global auto industry and VW has been at the forefront here. It has some of the biggest brands in its kitty and will be conscious of the fact that there are no more easy pickings going forward.

This is because almost every carmaker is already wedded to the other through some equity alliance. The significant exceptions are Toyota, Honda and Hyundai. “Suzuki presents an attractive opportunity and VW will pull out all stops to keep the alliance intact for now,” an industry veteran said.

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