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Volkswagen says Suzuki breached contract

German carmaker Volkswagen said Japanese partner Suzuki had violated their near two-year old partnership and gave it weeks time to fix the situation, marking a new low in relations between the two.

business Updated: Sep 11, 2011 21:58 IST

German carmaker Volkswagen said Japanese partner Suzuki had violated their near two-year old partnership and gave it weeks time to fix the situation, marking a new low in relations between the two.


VW said on Sunday a deal by Suzuki to source diesel engines from Italian group Fiat was a contractual breach.

"Suzuki has now been given a period of several weeks to remedy the infringement. Volkswagen considers this step regrettable, but necessary, and has offered to discuss the matter with Suzuki," it said.

A VW spokeswoman said this "does not mean the end of the partnership" and it was still very much interested in continuing the alliance. "We will have to see now how Suzuki reacts and then we will discuss the next steps to be taken."

VW did not intend to either sell or reduce its 19.9 percent stake in Suzuki it bought in December 2009 for 1.7 billion euros ($2.3 billion) as part of a strategic partnership with the maker of the Jimmy and Grand Vitara, the spokeswoman said.

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.

Suzuki has been buying 2.0-litre diesel engines from Fiat Powertrain Technologies since 2006 for the SX4, manufactured in Esztergom together with the Fiat Sedici, which shares the same underpinnings.

VW claims influence

Billed as a partnership of equals, VW hoped its Suzuki deal would address, in one fell swoop, its two biggest weaknesses -- gaining a foothold in India and in the market for cars with a maximum 1 litre engine.

In return, Suzuki would receive access to technology it could not afford to develop on its own.
A year and a half later, the partners have no joint projects and relations have headed south. Suzuki executives saying there was a "need to return to the starting point, including the ownership ratio".

Suzuki chief executive Osamu Suzuki first signalled his unhappiness over the deal in a July 1 blog in Japan's leading business daily, Nikkei.

Later, Suzuki was angry VW had classified it as an associate to be carried at equity -- an accounting term typically reserved for holdings of at least 20 percent where VW can "significantly influence financial and operating policy decisions".

"It is there, in written form, and it is being explained this way to their shareholders. This came as a complete shock, and we struggle to see how they are influencing us in any way," executive vice president Yasuhito Harayama, in charge of relations with VW, told reporters in July.