VW, Maruti cease two year old partnership

Volkswagen’s dream to become the world's biggest car maker by 2018 seems to turn into haze now as the company withdrew its stake in Maruti Suzuki. Atleast for Indian market, both the members of broken partnership will face their share of disadvantages now.

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Volkswagen (VW) bought a 19.9% stake in Suzuki paying $2.3 billion in December 2009. But Suzuki Motors Chairman and CEO Osamu Suzuki on Monday offered with cash on hand, to buy Volkswagen's stake in his company. In return, he promised to take away its 1.5% stake in Volkswagen, in order to end a two-year-old alliance. According to sources, the German carmaker accused Maruti of agreeing to a diesel engine deal with Italy's auto company- Fiat, thereby violating their partnership pact.

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Volkswagen will now take time to get big in India. Now the post-divorce effects will haunt Volkswagen which hosts brands like Skoda, Seat, Bentley and Audi under its belt. A tie-up with Suzuki was supposed to give Volkswagen an indirect control over Maruti which is Suzuki's highly-profitable subsidiary in India that controls nearly half of its car market. Volkswagen could have tapped the small car-making expertise of Suzuki as the global car market trend tilts towards compact cars. The company will now take long to understand the dynamics of Indian market in the absence of know-how about marketing for small cars. In addition, this break-up between the two giants will have an ill-effect over supplies also. Volkswagen would have benefited by capturing Maruti's highly cost-efficient component suppliers.

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Every action has an equal and opposite reaction. If the expected list of Volkswagen’s woes is long, Maruti too will have to bear the jerk. Suzuki was gaining a lot from Volkswagen's diesel engine and green technology like hybrids and electric vehicles which are quite popular in European market. By breaking the venture it will mean more efforts on part of Maruti to boost exports. Maruti plans to set up a new factory in Gujarat, a third in India, the proposed land for which is very close to the port and hence good for exports. Through the Volkswagen alliance, the company could have gradually earned a lot from the overseas market but the chances of such a bright future are doomed now.