Suzuki scrap: Feud fires up new alliance

Suzuki's deal with Maruti Suzuki - India's top-selling carmaker - will meet demand for diesel-powered versions of the Swift. Photo / Supplied

A simmering feud between Volkswagen and Suzuki has resulted in confirmation of a huge engine deal between Suzuki and Fiat for the supply of 100,000 diesels a year.

Suzuki and VW have been locked in battle since forming a partnership two years ago, and the dispute has deteriorated to the point where it is now listed for hearing in the International Court of Arbitration in London.

Suzuki publicly terminated the alliance and called on VW to sell the 19.9 per cent stake in Suzuki it bought for €1.7 billion ($2.7 billion) in November 2009, when the companies agreed to a "technology transfer" deal mainly aimed at providing Suzuki with diesel engines and other environmental technology.

Both companies have cited breaches of the agreement, says industry website Goauto.com.au.

VW made the spat public in September last year after hearing of Suzuki's plans to buy 1.3-litre Multijet diesels from Fiat, with which it had dealings with since 2005.

VW said it had served notice on its partner of an infringement, and noted that "the partnership is developing more slowly than expected" and was to be reviewed. Suzuki reacted swiftly and angrily, declaring its board of directors had decided to dissolve the cross-shareholding relationship (Suzuki had taken 1.5 per cent on VW).

Suzuki claimed that, after a year getting nowhere while other VW Group companies took technical precedence, it was forced to go its own way early last year.

While Suzuki has issued a succession of statements over the past four months, VW appears to have remained silent, despite repeated calls to sell its shares.

In October, Suzuki issued its own "notice of breach" of the Framework Agreement, with company chairman Osamu Suzuki saying that "if Volkswagen will not allow access [to technologies] it must return Suzuki's shares".

A month later, following no action from VW, the Suzuki board announced termination of the agreement and start of arbitration proceedings in London.

"VW's actions have left us no choice," said Suzuki. "They have continued to refuse our attempts on numerous occasions to resolve these issues through negotiation.

"In the absence of VW's co-operation and given its failure to do what was agreed, there is no basis for the partnership to continue."

The confirmation of the engine deal between Fiat and Maruti Suzuki - India's top-selling carmaker - will meet demand for diesel-powered versions of Suzuki's Ritz, Swift, Swift Dzire and SX4 models.

According to New Delhi TV, the Fiat deal will not only upset VW but also Tata Motors, which is its joint-venture partner in Fiat India Automobiles - the company that will produce the engines under licence from Fiat SpA.

NDTV reports that, when asked to comment on the deal, Tata Group chairman Ratan Tata said they were "discussing the matter with Fiat".

The Fiat 1.3-litre four-cylinder diesel engine is supplied to Tata for its Indigo and Indica models in India, and will also be produced soon under licence by General Motors at its plant in Talegaon, near Mumbai.

Suzuki's deal with Fiat is for three years - with production starting from next week at Fiat's Ranjangaon plant - and is in addition to ongoing production of Fiat-licensed engines built by Suzuki Powertrain India.