September 12, 2011 / 3:42 AM / in 7 years

Suzuki seeks divorce from Volkswagen over Fiat spat

TOKYO (Reuters) - Suzuki Motor (7269.T) wants to end its two-year-old alliance with Volkswagen (VOWG_p.DE) after the German carmaker accused it of violating their partnership pact by agreeing a diesel engine deal with Italy’s Fiat FIA.MI.

Suzuki Motor Corp Chairman and Chief Executive Osamu Suzuki speaks during a news conference in Tokyo September 12, 2011. REUTERS/Kim Kyung-Hoon

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 (1.47 billion pounds) 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 (1.39 billion pounds), 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 (PSHG_p.DE) 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 an harmonious parting,” he added.

A worker checks a car on the inspection line in the Hungarian plant of Japanese car maker Suzuki in the town of Esztergom, 60 km (37 miles) west of Budapest, July 14, 2011. REUTERS/Bernadett Szabo

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 it’s stake in the medium term.”

PARTNER PROBLEMS

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.

Suzuki’s divorce filing comes after Volkswagen said on Sunday a deal by the Japanese company to source diesel engines from Fiat hurt cooperation.

VW was annoyed that Suzuki stuck with long-time engine partner Fiat late in June when picking it to supply its Hungarian-built SX4 crossover with a 1.6-litre diesel engine.

“A break-up with Suzuki would be bad for VW,” Ferdinand Dudenhoeffer, head of the Centre for Automotive Research at the German University of Duisburg-Essen, said on Monday.

“Despite its many brands, VW so far has no real competence in the rapidly growing low-cost car segment,” he added.

VW has been juggling several deals at once — the Suzuki alliance, a Porsche merger and plans to combine the truck-making business of MAN (MANG.DE) and Sweden’s Scania SCVb.ST. None of them have been seen as a shining success.

Ahead of its announcement, Suzuki shares closed down 2.8 percent, compared with a 2.3 percent dip in the benchmark Nikkei 225 .N225 index.

Volkswagen shares were down 3.6 percent at 1:43 p.m. British time.

STALLED PARTNERSHIP

Suzuki’s deal with VW is not the first time the Japanese carmaker has tied itself to one of the big global automakers.

In 1998, Suzuki entered into a strategic partnership with General Motors (GM.N), which took a 17.4 percent stake in the Japanese firm.

That alliance began to unravel in 2006 when the U.S. car company sold most of its stake as it scrambled for cash amid ballooning losses.

Other unsuccessful combinations have included Germany’s Daimler (DAIGn.DE) and Detroit-based Chrysler, which ended during the financial crisis. DaimlerChrysler’s partnership with Mitsubishi Motors (7211.T) ended in 2005 after five years.

Additional reporting by James Topham and Yuka Obayashi in Tokyo, Jan Schwartz, Christiaan Hetzner and Maria Sheahan in Frankfurt; Editing by Vinu Pilakkott, Lincoln Feast and Mike Nesbit

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