Suzuki Says VW Breached Car Technology Deal

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October 14, 2011, 3:15 AM EDT By Anna Mukai and Yuki Hagiwara

(Updates with comment from VW in fifth paragraph.)

Oct. 14 (Bloomberg) -- Suzuki Motor Corp. accused Volkswagen AG of violating a partnership agreement by not sharing technology and reiterated its demand that the German carmaker to sell back its stock.

Suzuki sent a letter to VW asking it to remedy “numerous” breaches of an agreement, the Hamamatsu, Japan-based company said in a statement today, without providing details of the alleged infringements. The German carmaker bought 19.9 percent of Suzuki in 2009 and the Japanese company took a 1.49 percent share of VW.

“This capital alliance was intended to facilitate Suzuki’s access to VW’s core technologies,” Suzuki’s Chairman Osamu Suzuki said in the statement. “I remain disappointed that we have not received what we were promised. If VW will not allow access, it must return Suzuki’s shares.”

Suzuki is seeking to end its partnership with Volkswagen, which has accused the Japanese company of violating the cooperation agreement by purchasing engines from Fiat SpA. Chairman Suzuki said Sept. 22 that VW’s allegation had “significantly disparaged Suzuki’s honor” and demanded a retraction.

“The accusations are completely unfounded,” VW spokesman Michael Brendel said today by telephone from the carmaker’s Wolfsburg, Germany headquarters, in response to the letter from Suzuki. “Volkswagen has from the start done all it could to safeguard the partnership.”

Suzuki’s shares fell 0.2 percent to 1,656 yen as of the 3 p.m. close of Tokyo trading, while the benchmark Nikkei 225 Stock Average dropped 0.9 percent.

Broken Relationship

“Now that both companies are claiming that the other infringed on the partnership, it seems like they will have to legally resolve this process,” said Tatsuya Mizuno, director of Mizuno Credit Advisory in Tokyo. “It doesn’t look like they will be able to rebuild their relationship.”

Suzuki has given VW “several weeks to remedy the breaches,” Executive Vice President Yasuhito Harayama said today at a media briefing in Tokyo. He declined to say when Suzuki expects the partnership to end. Top executives from both companies are holding talks, he said.

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

The cooperation agreement hasn’t resulted in a single project, the companies have said. The Japanese automaker plans to sell its holdings in VW should the tie-up end, the company said Sept. 12. VW has said it doesn’t plan to sell or reduce its stake in Suzuki.

“Competition in India and at home is intensifying,” Masatoshi Nishimoto, a Tokyo-based analyst at IHS Automotive, said in a phone interview. “If the partnership with VW is delaying their development of new technology and cars, they need to end it as soon as and as calmly as possible.”

--Editors: Chua Kong Ho, Dave McCombs

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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