Bumpy partnership

The frayed partnership between Volkswagen and Suzuki appears to be unraveling after the CEO of the Japanese carmaker, Osamu Suzuki, asked for a "divorce" over the weekend.

Relations between the two carmakers have deteriorated to an all-time low, and a legal battle could be looming.

VW is accusing Suzuki of violating their partnership by agreeing to purchase diesel engines from Italian supplier Fiat. That decision was viewed by many in the industry as a deliberate snub to Wolfsburg-based company, a leading maker of diesel engines.

Plenty of frustration

The German carmaker is also said to be frustrated with the Japanese partner's slow decision-making.

Suzuki has been trying to distance itself from VW ever since the German company referred to its Japanese partner as an "associate" in a financial statement earlier this year. The classification, observers say, has enraged Suzuki executives who prize their independence.

The Japanese carmaker has also been disenchanted with the limited access the company has been given to VW's advanced technology in areas such as hybrid and electric drives, as agreed under their partnership.

Suzuki is now demanding that VW sell its nearly 20 percent in the Japanese firm, a call the German company rejects.

The spat between the once friendly partners - hardly a first in the industry - shows the inability of automakers to forge tight alliances, analysts say.

Ambitious plans

"Auto manufacturers are very good at partnering with their suppliers around the globe but terrible at forging alliances among themselves," said Christoph Steurmer, an auto analyst with IHS Global Insight in Frankfurt. "They either conquer or are conquered."

Indeed, the history of alliances between rival carmakers is largely one of failure, often because the plans of ambitious CEOs clash with the old-fashioned engineering cultures of century-old companies, Steurmer told Deutsche Welle.

The list of failures includes partnerships between Fiat and General Motors as well as Suzuki and the same US auto giant.

A breakup could hurt Volkswagen, whose goal is to surpass Toyota and General Motors to become the world's largest carmaker by sales by 2018. To achieve that goal, VW needs to strengthen its position in certain Asian markets, particularly India, with small, low-cost vehicles.

Gaining access to that sort of technology and those markets was the driving force behind VW’s decision to acquire a stake in Suzuki in 2009.

"A breakup with Suzuki would not be good for Volkswagen, which, despite its many brands, still has no competence in the low-cost auto market, one of the fastest growing in the world," Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen and director of its automotive research center, wrote in an e-mail.

Still prepared to talk

Dudenhöffer also warned that VW's joint ventures with Chinese carmakers could become less cooperative once the Chinese "learn how to run" and become less dependent on their German partner's know-how.

For now, Volkswagen executives are trying to play down the talk of a possible split. At an event on Monday in Frankfurt ahead of the IAA, which opens later this week, CEO Martin Winterkorn said the company still “wants to talk" with Suzuki and continues to view its stake in the firm as "an investment."

VW Chief Financial Officer Hans Dieter Poetsch added that the company was "not working on any alternative scenarios."

That's a bit difficult to believe, however, given the huge business potential in the low-cost compact car segment and the equally huge interest VW has in tapping that market.

Author: John Blau
Editor: Matt Hermann