UPDATE 2-Volkswagen mulls cooperation with Suzuki - source

* VW eyes Suzuki’s success in small cars

* Tiny sells big in emerging markets

(Adds detail)

FRANKFURT, June 25 (Reuters) - Volkswagen VOWG.DE is exploring a cooperation deal with Japanese rival Suzuki Motor 7269.T to boost the German carmaker's expertise in ultra small cars, a source familiar with the matter said on Thursday.

“You have see it through an Asian perspective, particularly a Japanese one. There are vehicle sizes and classes that cannot be found here,” the person said.

“You only see them at the Tokyo motor show but it is undoubtedly an interesting segment, just have a quick look at the developing markets like India. It’s correct that there is a gap there that could be closed.”

The cooperation could provide a model below the upcoming “New Small Family” of mini cars based on the Up! concept. VW currently plans to release the range of small cars starting with a VW brand car which will be built in Bratislava and due to hit markets in 2011.

Germany’s manager magazin reported on Thursday Volkswagen was looking to secure a cooperation deal by taking a 10 percent stake in Suzuki.

“It’s not that far along,” the source said, adding “(Volkswagen) are first discussing the possibilities of a cooperation”.

A spokesman for Suzuki could not comment, saying he had not heard anything on a potential tie-up, while VW declined to comment.

Ferdinand Piech, Volkswagen’s chairman, signalled interest in Suzuki after praising it when asked at the Polo’s media launch last month in Sardinia which other brands could be added to the group’s stable.


Suzuki is benefiting in Japan from the popularity of 660cc ultra small vehicles -- a sector dominates with Toyota unit Daihatsu Motor Co 7262.T.

That helped Suzuki and Daihatsu overtake Nissan Motor Co 7201.T to become the second and third-ranked brands in Japan after Toyota in the past financial year.

The company also has a dominant leader similar to VW’s Piech. Chief executive Osamu Suzuki, in his late 70s, has held the post for the past 30 years and recently reclaimed the position of president -- a post he had previously relinquished.

Suzuki is also enjoying success in emerging markets like India, where its 54 percent unit Maruti Suzuki MRTI.BO is the country's biggest carmaker thanks in part to its best-selling Alto, a tiny model built in India together with Nissan's 7201.T Pixo, which share underpinnings.

These small cars have served as a major source of growth in markets like India, where mobility has spread to the populace.

Tata Motor's TAMO.BO new car that costs just 100,000 rupees ($3,500), dubbed the Nano due to its tiny size, has provoked a flood of orders and prepayments that helped Tata refinance a $2 billion of bridge loans due this month and used to fund its acquisition of Jaguar-Land Rover last year.

Additional reporting by Jan Schwartz in Hamburg and Nobuhiro Kubo in Tokyo; Editing by Dan Lalor