VW tries to smooth rift with Suzuki over alliance

HAMAMATSU/FRANKFURT Mon Jul 18, 2011 7:36am EDT

Suzuki Motor Corp's logo is seen on the company's special painted minivehicle Wagon R displayed at Tokyo Auto Salon 2010 at Makuhari Messe in Chiba, east of Tokyo, January 15, 2010. REUTERS/Toru Hanai

Suzuki Motor Corp's logo is seen on the company's special painted minivehicle Wagon R displayed at Tokyo Auto Salon 2010 at Makuhari Messe in Chiba, east of Tokyo, January 15, 2010.

Credit: Reuters/Toru Hanai

HAMAMATSU/FRANKFURT (Reuters) - Volkswagen (VOWG_p.DE) sought to allay Suzuki Motor's (7269.T) concerns it might overstep its bounds in a multi-billion-dollar alliance and try to bring the Japanese carmaker under its control.

Relations between Suzuki and VW showed signs of souring on Monday as Suzuki Executive Vice President Yasuhito Harayama asserted the company's independence and said the two groups needed to go back to the drawing board on their partnership.

Volkswagen responded by saying it would not encroach on Suzuki's autonomy.

Hans Demant, in charge of the alliance at VW, brushed off concern that Volkswagen might have more ambitious plans than expected.

"Volkswagen and Suzuki are and will remain two independent companies. No increase of Volkswagen's Suzuki stake has been agreed upon," he said in comments provided to Reuters by his spokesman.

VW's purchase of a near-20 percent stake in Suzuki for $2.5 billion in December 2009 was welcomed by investors who expected Volkswagen to gain an inside track into Suzuki's leading small-car technology, while Suzuki would have access to Volkswagen's hybrid technologies.

Harayama, Demant's counterpart at Suzuki, earlier on Monday told reporters in an interview with Suzuki's four new executive vice presidents that the balance of power in the alliance needed to redefined.

"It was made very clear when we tied up with Volkswagen that we did not want to become consolidated, and that we would remain independent," said Harayama, a former bureaucrat in Japan's economy and trade ministry hired by Suzuki two years ago.

"We feel we need to return to the starting point, including over the ownership ratio," he said.

"The understanding that we are independent companies, and equal partners, is the absolute prerequisite in pursuing any specific cooperation," Suzuki's Harayama said.

"Japanese managers do not readily criticize publicly, so the fact that in this case they have, shows that there really is a problem," top-rated StarMine analyst Juergen Pieper at Metzler Equities said, adding that he saw no chance of a working long-term partnership functioning between the two companies.

Numerous media reports since late last year have suggested Volkswagen was looking to bring Suzuki, Japan's No.4 automaker, under its control.

Volkswagen, Europe's largest automaker, has ambitious plans to overtake Japanese rival Toyota Motor (7203.T) as the world's No.1 player by 2018.

STAYING INDEPENDENT

Suzuki Chief Executive Osamu Suzuki had insisted at the time of the deal on being equal partners, limiting Volkswagen's stake to 19.9 percent. Suzuki has been gradually buying shares in the German automaker as part of the cross-shareholding agreement.

More than 18 months down the line, however, no progress has been made on joint development projects, a fact Suzuki's Harayama blamed on Volkswagen's notion it could wield influence over Suzuki's management.

Harayama's remarks echoed the views expressed by CEO Suzuki in a recent blog, published on the Nikkei newspaper's website.

"The two companies' sizes differ vastly in size, so maybe with the passage of time they get the misguided notion that they have brought Suzuki under the VW umbrella," the outspoken 81-year-old CEO wrote in the blog, published on July 1.

Having perused Volkswagen's technologies, the automaker "found nothing that it wanted right away," Suzuki also said.

Harayama stressed there were other automakers who were willing to work with Suzuki on an equal footing, and that Suzuki would continue to pursue operational tie-ups with a broad range of companies while holding back on any projects with Volkswagen until the two can reaffirm their initial understanding.

Last month, Suzuki announced a deal to buy 1.6-liter diesel engines from Italy's Fiat (FIA.MI) for a car to be built in Hungary -- a deal that both Suzuki and Harayama said proved the automaker could do without Volkswagen.

After an initial spike, Suzuki shares have lost ground since the Volkswagen deal, falling as much as a quarter to current levels around 1,827 yen and underperforming the broader market. Japanese markets were closed on Monday.

(Additional reporting by Ludwig Burger and Josie Cox in Frankfurt; Editing by Lincoln Feast and Jane Merriman)

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