Volkswagen and Suzuki have no plans for a divorce even though the alliance has achieved precious little for over two years now.

On Monday, agency reports quoted a VW spokesman dismissing as ‘nonsense' reports suggesting that the company was parting ways with Suzuki. Yet, there is really no cause for cheer, especially when neither partner has a clue on how to set things right for the future.

Fiat factor

Over the past two months, representatives of VW and Suzuki have been quite vocal on the slow progress of the alliance and the need for a review. In the interim, the Japanese automaker has entered into a new diesel engine sourcing agreement with Fiat, spawning speculation that a new global alliance could be in the offing.

“The general impression was that VW would be Suzuki's first choice for diesel engines and opting for Fiat instead sure set tongues wagging,” an automobile executive told Business Line . There was also an India twist to the tale with Fiat tipped to increase output of diesel engines at its largely underused Pune plant (a joint venture with Tata Motors), which would help meet Suzuki's needs for its local arm, Maruti.

Within industry circles, this was seen as a setback to VW, which was hoping to leverage the alliance and build its India presence, especially in the compact car segment. A lot was expected by way of synergies at the back-end where Maruti's cost-efficient structure would have been of immense help.

‘Cultural mismatch'

From VW's point of view, the Suzuki partnership is also a key input in its strategy to be the world's top automaker by 2018. It already has in its kitty top brands such as Audi, Skoda, MAN and Scania with Porsche being next in line. Going by market potential, India is clearly one of the most buoyant after China and there was no better option than Maruti to make the VW vision a reality.

The issues between Suzuki and VW stem from a ‘cultural mismatch' going by global media reports. In fact, this played havoc with the Daimler-Chrysler merger in the 1990s which promised plenty but just failed to deliver. Fiat has now taken charge of Chrysler and it remains to be seen if will enter into a deal with Suzuki and eventually replace VW as the preferred partner.

“With consolidation being the name of the game in the auto industry, there is no telling what will happen tomorrow as existing alliances perish and new ones are formed,” an auto industry veteran said. Finally, it boils down to survival in an intensely competitive market that is fragmenting rapidly.

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