Suzuki seeks divorce from Volkswagen over Fiat spat

TOKYO (Reuters): Suzuki Motor wants to end its two-year-old alliance with Volkswagen after the German carmaker accused it of violating their partnership pact by agreeing a diesel engine deal with Italy’s Fiat

.An exit by Suzuki would end an alliance forged in December 2009 that was billed as a partnership of equals to bolster VW’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 CEO Osamu Suzuki on Monday offered to buy Volkswagen’s 19.9 percent stake in his company with cash on hand, and in return, promised to offload its 1.5 percent stake in Volkswagen back to its estranged German partner.

VW bought its Suzuki stake for 1.7 billion euros ($2.3 billion) 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, while Suzuki’s VW stake is worth about $950 million. The move comes after two months of squabbling between the two companies, with Suzuki accusing VW of wanting to bring the Japanese company under its control and VW trying to make amends by promising it would not encroach on Suzuki’s independence. It is the second setback for VW in as many weeks after it had to push back a planned merger with Porsche 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,” he added. In a separate statement, VW said it had no intention of selling the shares and asked that cooperation between the two continue. Analysts said they believed that VW would not have a choice in the matter.

“As Suzuki has already offered a termination of the cooperation we can’t really see VW moving ahead with the alliance or even increasing its grip on Suzuki and thus forcing the company into a deeper cooperation,” Munich-based UniCredit analyst Christian Aust said.

“We expect VW 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 vehicle) 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.