VW-Maruti Suzuki plan Alto replacement; Rs 2.5lakh target price

VW eyeing No1 spot in the World

The latest alliance so far, the VW-Suzuki alliance will develop an all new small car to replace the ageing Alto. Although the A-star is the Alto’s replacement in the rest of the world, in India due to the price difference, Maruti has decided to design an all new model which is expected to be shown at the Auto Expo. The target price for the car is around Rs 2.5 lakh ($5000). VW will co-develop the car with Suzuki and will make its own model on that platform to be positioned under the Up!.

“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. We had already covered news on VW picking up  19.9% stake in Suzuki for $2.5 billion. The joint venture will spawn a new range of small cars and electric cars in the Rs 2-2.5lakh price range ($4000-$5000).

Alto replacement will come-out of VW-Suzuki partnership

The main reason for the alliance is Suzuki’s experience in small cars. When VW launches its Up!, the car would cost around $9000 Rs 4.5lakh which positions it a shade under the Polo. This will be unsufficient in India atleast and hence the tie-up. “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.

VW is currently in the final phase of the launch of Polo in India. While it does compete against Swift and the i20 range, a cheaper VW in the form of the Up! will join the Polo sometime in 2012. The Alto needs replacement soon as the M800 will be phased out in 11 metros once the Bharat-4 norms come into play next year, which leaves the Alto to battle it out with the Nano. The Alto virtually has time till the Nano production starts in large numbers at the Sanand plant.

A-Star is too expensive to replace Alto in India

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. Athough 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.

VW Up! will cost around 4 lakhs. Hence VW is looking at an even smaller car

While VW neds expertise to develop a low cost car, Suzuki needs engines, at which VW is a master. So this is a win-win situation for both companies. “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.

“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.

VW Polo launch at the Auto Expo

While GM too has a stake in Suzuki Motor corp, there was no alliance/partnership with Suzuki for the any cars. 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 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.

Finally, the key to all such partnerships is VW’s aim to topple Toyota to become the No1 in the world. It looks very easy now, as VW is entering the core of the market.

ET