Volkswagen-Suzuki Feud Escalates as Japanese Honor `Disparaged’

Volkswagen AG, Europe’s largest carmaker, stood by its accusation that Suzuki Motor Corp. breached a partnership agreement, rejecting the Japanese company’s calls to restore its “honor.”

Suzuki has to “correct” an alleged contract violation stemming from its purchase of engines from Fiat SpA, VW said today in an e-mailed statement. The Wolfsburg, Germany-based company was responding to Suzuki’s demand earlier today to retract the accusation.

“I can’t conceive how this conflict can possibly be resolved,” said Daniel Schwarz, a Frankfurt-based analyst at Commerzbank AG who recommends buying VW shares. “The chances are growing now that the partnership accord will be dissolved.”

Suzuki wants to end the 20-month-old carmaking alliance after VW’s 222.5 billion yen ($2.9 billion) investment failed to yield a single project. The relationship has escalated into a public feud after the German carmaker, which owns 19.9 percent of Suzuki, said it could influence decisions at the Japanese manufacturer.

“Suzuki never breached” the agreement by buying diesel engines from Fiat, Chairman Osamu Suzuki said in a separate statement today. The allegation had “significantly disparaged Suzuki’s honor.”

In response, VW said that it failed to understand how adhering to contractually defined rights can be defamatory.

“From Volkswagen’s perspective, every effort has been made from the start to continue the partnership,” the company said in the statement.

Engine Comparison

The Hamamatsu, Japan-based automaker had discussed the reasons for deciding against VW’s engines with the automaker in January, it said today. Suzuki called on VW to compare and test the engines against Fiat’s as a “remedial action.”

Suzuki sent an official complaint to VW Chief Executive Officer Martin Winterkorn. The German manufacturer confirmed that the letter was received, though urged such “internal exchanges” to remain confidential.

“Such theatrical actions are unhelpful in the current situation,” VW said.

VW and Suzuki have been at odds since the German carmaker said in its annual report published in March that it could “significantly influence financial and operating policy decisions” at Suzuki, describing the Japanese company as an “associate.”

Indian Plans

The Japanese automaker, which owns 1.49 percent of VW, plans to sell its holdings if the tie-up ends, the company said in a Sept. 12 statement to the Tokyo Stock Exchange. VW has said it doesn’t plan to sell or reduce its stake in Suzuki.

The dispute has brought to a halt the company’s efforts to form an operational alliance. The partnership was meant to combine Suzuki’s leading position in India, Asia’s second-fastest growing major economy, with VW’s global reach as the world’s third-biggest carmaker.

“It wouldn’t be the end of the world for VW if that partnership fails,” said Schwarz. “VW has its own capacities in India. They’re making their own models there and market share is growing.”

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