Car-makers at war over engine deal

A SIMMERING feud between Volkswagen and Suzuki has resulted in this week’s confirmation of a massive 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 just 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 publically terminated the alliance and called on VW to sell the 19.9 per cent stake in Suzuki it bought for €1.7 billion ($A2.1bn) 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.

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 dating back to 2005.

The Wolfsburg company 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 the following day that its board of directors had decided to dissolve the cross-shareholding relationship (Suzuki had taken 1.5 per cent on VW).

Left: The Fiat 1.3-litre Multijet engine. Below: Suzuki Ritz and SX4 and Tata Indica and Indigo.

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, which culminated in this week’s announcement – by Fiat, interestingly, not Suzuki.

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 and “repeated requests to have amicable discussions”, the Suzuki board announced termination of the agreement and that start of arbitration proceedings in London.

“I am disappointed that we have to take this action but VW’s actions have left us no choice,” said Mr Suzuki.

“They have continued to refuse our attempts on numerous occasions to resolve these issues through negotiation.

“I am more disappointed that, having shaken the hand of (VW chairman Martin) Winterkorn in agreeing to this partnership, he has not honoured his commitment to grant Suzuki access to what was originally agreed.

“In the absence of VW’s cooperation and given its failure to do what was agreed, there is no basis for the partnership to continue.”

This week’s confirmation of the engine deal between Fiat and Maruti Suzuki – India’s top-selling car-maker – 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 Limited – the very 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 are “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 FIAL’s Ranjangaon plant – and is in addition to ongoing production of Fiat-licensed engines built by Suzuki Powertrain India Ltd.