A tiff that started over Volkswagen's description of Suzuki in its annual report has escalated into a spat threatening to unravel the two carmakers' planned alliance before the partnership gets going.

"Volkswagen is not talking to us," said Osamu Suzuki, the company's chairman. "We have no plans to talk to them."

The downward spiral began in March when VW said in the report that it could "significantly influence financial and operating policy decisions" at Suzuki, describing the Japanese company as an "associate".

That didn't sit well with Suzuki.


The two since then have engaged in a public feud that has brought to a halt VW's efforts to turn a 222.5 billion ($3.5 billion) investment into an operational alliance.

The partnership was meant to combine Suzuki's leading position in India, Asia's second-fastest growing major economy, with Volkswagen's global reach as the world's third-biggest carmaker.

When the deal was signed in December 2009, with VW taking a 20 per cent Suzuki stake, the companies said they intended to co-operate on technology, including hybrids and electric cars, and expansion in emerging markets. Almost two years later, no joint projects have begun.

VW, which forecasts deliveries will rise 5 per cent this year after selling 7.2 million vehicles last year, aims to surpass Toyota and General Motors as the world's largest carmaker by 2018 and is targeting India as an expanding market to boost sales. Suzuki, which sold 2.64 million cars in its last fiscal year, delivered 1.13 million of those vehicles in India.

VW sold 53,300 cars in the country last year.

"Suzuki really needs a big manufacturer behind it, so the effect of a withdrawal would be far worse for them," said Aleksej Wunrau, a Frankfurt-based BHF Bank AG analyst.

"Volkswagen could very well step back from Suzuki and either seek another partner or start afresh on their own in Japan and India, which would, of course, be a lot more expensive."

Osamu Suzuki hasn't found any VW technologies he'd like to adopt after an extensive review of what they have to offer, he wrote in a Nikkei newspaper column in July. Instead, he decided in June to buy diesel engines from Italy's Fiat for cars built in Hungary. Suzuki also said in July it was open to forming alliances with others.


The moves have left VW baffled, with the carmaker now of the opinion that Suzuki has rolled back the partnership to square one by keeping its German ally in the dark about the Fiat plans and its intentions to seek alliances with rivals, according to a person familiar with VW's thinking. VW chief financial officer Hans Dieter Poetsch said on July 28 that the partnership is under review.

"VW and Suzuki still are, and will continue to be, two independent companies with different business models from different cultural environments," said Hans Demant, VW's co-ordinator for international projects.

"The co-operation is marked by highest respect and acceptance."

Suzuki is aiming to clarify what direction it wants to take with the partnership by October, one of the executives said. "Volkswagen keeps talking to the media, but not to us directly," chairman Suzuki said on August 10.

Volkswagen chief executive Martin Winterkorn said in May the carmaker planned to target the small-car segment in India as a potential joint project with Suzuki, as well as parts procurement and development of alternative-drive technologies.

While Suzuki has a dominant position in India, where its Maruti Suzuki India unit is the market leader, increasing competition means holding on to the top spot will become harder.

VW's global reach and product portfolio, with more than 60 models at the namesake brand alone, could help.

Maruti Suzuki will sell 36 per cent of the 3.07 million vehicles delivered in India this year, IHS Automotive estimates.

Overall sales in the market will climb 76 per cent to 5.41 million in 2016, with Maruti Suzuki nabbing 25 per cent, according to IHS forecasts.

The lack of progress in the new co-operation with Volkswagen contrasts with what Mitsubishi Motors and PSA Peugeot Citroen have achieved, said Masatoshi Nishimoto, a Tokyo-based IHS auto analyst.

Mitsubishi and Peugeot began a partnership in 2005 when the Japanese carmaker began supplying a car based on its Outlander sport-utility vehicle to its French partner.

Since then, they have built a factory together in Russia that started operating last September, and Peugeot last year announced it would sell electric cars supplied by Mitsubishi.

- Bloomberg