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Diamond Diesel Service, Inc., Auto Repair & Service - Diesel, Oakland, CA

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Back To Diesel Products>Suzuki to End Hybrid Work With GM

By YOSHIO TAKAHASHI

JANUARY 15, 2010, 7:32 A.M. ET

HAMAMATSU, Japan -- Suzuki Motor Corp. will likely have to reorganize its partnerships with General Motors Co. because of a new alliance with Volkswagen AG, the head of the Japanese car maker said Friday.

"We need to rearrange our traffic," said Osamu Suzuki, the company's chairman and chief executive, referring to tie-ups with U.S. and European car makers that were forged before Suzuki announced its partnership with the German auto giant last month.

Suzuki will work jointly on environmental-technology projects, "learning from our partner," the CEO told reporters in Hamamatsu, central Japan, where the company is headquartered.

The Japanese small-car maker has a technology-development deal with GM and produces vehicles for Adam Opel GmbH, while it procures some of its diesel engines from Renault and Peugeot S.A. As part of the review, Suzuki will end joint development of a hybrid system with GM by the end of February and will likely terminate a fuel-cell systems project with GM, Mr. Suzuki said.

Volkswagen could ask the Japanese company to use its diesel engines instead of those made by the two European firms, Mr. Suzuki said, although details of such a tie-up haven't been decided.

Renault produces 1.9-liter diesel engines for Suzuki, while Peugeot makes 1.6-liter engines. Mr. Suzuki said his company will keep making 1.3-liter diesel engines in India based on Fiat SpA technology.

The CEO, who turns 80 this month and has overseen the company for 31 years, said the car maker wants to continue to produce its Splash compact cars for Opel of the GM group as long as the partner demands.

A spokesman for Volkswagen's Japan unit declined to comment on whether the German company will ask Suzuki to use its diesel engines. GM's Japanese unit couldn't be reached.

Suzuki, helped by its dominance in the booming Indian auto market and smaller exposure to the U.S., was one of the few Japanese car makers to eke out a profit in the business year ended March. Its net profit sank 66% but most of its domestic rivals swung into deep losses as the global downturn dented auto demand. Suzuki controls about half of India's car market through its Maruti Suzuki India Ltd. subsidiary.

The Japanese company forecasts net profit will drop a further 45% this year to 15 billion yen on sluggish sales in Japan and a strong yen.

Suzuki is Japan's second-biggest seller of fuel-efficient mini cars but it has fallen behind in the race for advanced low-emission technologies using electric devices and upgraded diesel engines.

Through the partnership with Volkswagen, the Japanese company hopes to enhance development of gas-sipping cars using Volkswagen technologies, while the German partner exploits Suzuki's technology to produce compact cars at lower cost.

Europe's biggest car maker by volume plans to launch its first hybrid vehicle, the Touareg hybrid, this year, and an electric-car model based on its E-Up concept in 2013.

Suzuki Motor said Friday that Volkswagen completed its purchase of a 19.9% Suzuki stake for 222.48 billion yen ($2.5 billion), under the new alliance. Suzuki, in return, will invest up to half that amount in Volkswagen to solidify the broad alliance.

The CEO said Suzuki wants to make the investment as early as possible but that "there are few floating shares available," as Porsche Automobil Holding SE owns a 51% stake in Volkswagen, the German state of Lower Saxony holds 21% and Qatar has 17%.

"We are asking to look for a shareholder who could sell the shares to us," he said.

Suzuki tied up with Volkswagen after a 1981 capital alliance with the former General Motors Corp. ended in 2008, when GM unloaded its remaining 3% stake in Suzuki. GM had reduced its stake from 20% in 2006 as part of a restructuring.

Write to Yoshio Takahashi at yoshio.takahashi@dowjones.com

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