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Volkswagen-Suzuki to roll out Rs 2.5-lakh car in India
The Volkswagen-Suzuki alliance plans to develop a brand new small car for the Indian market in the Rs 2-2.5 lakh range, which could replace the Alto when the Indian arm of Suzuki decides to retire its top-selling model.

"We will need a car in the Rs 2.5-lakh apiece range. First we had the M800, then the Alto. At some point we will need a replacement for the Alto. That price range is the entry level for Indian customers today, so we can't leave that segment open," Maruti Suzuki chairman RC Bhargava told ET.

Volkswagen and Japan’s Suzuki Motor had, on Wednesday, announced a deal which will see the German carmaker picking up a 19.9% stake in Suzuki for $2.5 billion. The companies plan to develop small cars and electric vehicles under both brands. The new car that will be priced at $4000-5000 in the European market will be the cheapest car from the Volkswagen stable below the Up, which carries a price tag of around $8800.

“Volkswagen will be greatly interested in a car below the price segment of the Up, which we have already displayed in India, and that is something we will need to check in our future together with Suzuki,” Fabian Mannecke, the spokesman for Volkswagen, told ET.

Volkswagen is launching its Polo hatchback in India next year, which will be pitted against the Suzuki Swift and other premium hatchbacks such as the Hyundai I20. Mr Mannecke said VW was not targeting the Nano segment. Currently the cheapest product from Suzuki stable is the M800, which will get phased out in 11 large cities across India that will adopt Euro 4 emission standards in 2010.

The alliance will mean serious competition for Tata Motors diesel cars Indica Vista and Indigo, said Manish Mathur, principal at AT Kearney. "The cross-pollination of technology, product architecture and product development will mean both Suzuki and VW will now be able to bring in more diesel options, especially in small cars," he said.

Although the contours of the partnership are still being worked out, both partners are interested in developing common platforms. Sharing platforms will enable VW to use Suzuki for contract manufacturing both in Japan and India. Mr Mannecke said the option of using Maruti Suzuki's plants to manufacture VW cars for European markets-a strategy that Nissan is already employing-is something VW management is thinking about.

While VW is looking for a small car in the price range of euro 2000-2500 ($4000-5000) with which it can not only drive bigger sales in India and Europe, Suzuki is looking to source diesel engine technology from the German company.

"Suzuki does not have diesel technology and that is one of the main things that will interest them in the future," Mr Mannecke said. Suzuki's current diesel engine used in the diesel versions of Swift and Dzire, is sourced from Fiat through a three-way partnership with GM and Fiat.

However the global partnership will not result in the two companies sharing distribution and dealership
networks in India. According to VW officials, the main focus of the synergy, particularly in India, will be on back-end areas like production and purchasing of parts.

"Volkswagen and Suzuki are getting into this cooperation with a strategic view but each brand will retain its own outlook for the customer. Nothing will be shared at the front-end including dealerships and distribution networks. The synergy will be at the back-end in production sharing and common purchasing of components," Mr Mannecke said.

GM too had a 20% stake in Suzuki Motor, but did not have any front-end partnership with Suzuki in the latter's most profitable market-india. India now contributes around 80% of Suzuki's profits in the first half of this fiscal year, up from 33% in 07-08. The Indian arm contributed 20% of Suzuki's consolidated turnover in the fiscal half.

Maruti Suzuki doesn't see the alliance impacting the company's policies. "Maruti Suzuki is 54% owned by Suzuki, which drives the management and policies. So unless there's a change policy in Japan, which seems to me unlikely, things wont change. If GM at 20% stake did not disturb Maruti, why should Volkswagen?" said Mr Bhargava.

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