Suzuki ends two-year alliance with VW

The two-year old alliance between Volkswagen AG (VW) and Suzuki Motor Corp has collapsed with the Japanese car maker dissolving the partnership after the German firm accused it of violating their partnership contract by agreeing to buy diesel engines from Italy's Fiat S.p.A.

Wolfsburg, Germany-based Volkswagen, one of the world's leading automobile manufacturers, over the weekend, issued a notice to Suzuki for infringement of their agreement relating to the supply of diesel engines produced by another manufacturer, without naming the manufacturer.

Europe's largest car maker said in a statement, ''Volkswagen takes the view that this contradicts the terms of the cooperation agreement. 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. At the same time, the company stresses it still regards Suzuki as an attractive investment.''

With an eye on India, one of the fastest growing car markets, in December 2009 Volkswagen paid $2.5 billion for a 19.9-per cent stake in Suzuki, to develop and manufacture energy-efficient small cars in emerging markets. (See: VW acquires 19.9-per cent stake in Suzuki for $2.5 billion)

At the time of inking the pact, Suzuki, Japan's fourth-largest automaker, said it planned to procure diesel engines from Volkswagen, adding that the two companies would also look increasingly at possibilities of a common platform for parts.

But since then, their alliance has languished, and recently the two have taken their differences to the open with Suzuki's chairman, Osamu Suzuki saying in a July blog post in Japan's leading business daily, Nikkei that Suzuki "had found nothing that it wanted right away" from Volkswagen's portfolio of technologies.