August 10, 2017 / 9:34 AM / 6 days ago

Volkswagen Group, Tata end talks on emerging markets tie-up

A Volkswagen logo is pictured at the newly opened Volkswagen factory in Wrzesnia, Poland, September 9, 2016.Kacper Pempel/Files

BERLIN (Reuters) - Cooperation talks between Germany's Volkswagen Group and India's Tata Motors about joint development of a car for emerging markets have ended amicably, the two companies said on Thursday.

The collapse of the talks is a further blow to Volkswagen's (VW) efforts to develop a cheap vehicle platform for Asian markets, after an earlier alliance with Japan's Suzuki Motor Corp also fell apart.

In March Tata Motors and VW announced a Memorandum of Understanding (MoU) for a long-term partnership to explore joint development of products for customers in India and other markets.

The German group's Czech arm Skoda, commissioned by VW to lead the talks with Tata, was exploring a possible entry-level car platform together with the Indian manufacturer, using Tata's AMP vehicle platform as a basis, a VW group source said.

Skoda dropped the idea of developing the AMP platform on fears that it would need significant further investment to meet future crash-test and engine emissions requirements and would instead explore parent VW's MQB platform for possible further savings, said the source, who declined to be named.

"The two companies have come to the conclusion that at the present point of time the technical and economic synergies cannot be realized in the desired way," Skoda said on Thursday, confirming a Reuters story.

"We have evaluated the technical feasibility and degree of synergies for the envisioned partnership. We have concluded that the strategic benefits for both parties are below the threshold levels," said Tata Motors Chief Executive Guenter Butschek, the German automotive and aerospace industry veteran who joined the Indian company last year.

But the two automakers, which also studied joint development of components, did not rule out the possibility of collaboration in the future after holding what Skoda called "constructive talks" over the past five months.

VW shares closed 0.7 percent lower at 127.15 euros. Tata Motors shares plunged 9 percent to 380.20 rupees, after the company reported lower than expected first-quarter results.

FILE PHOTO: Men ride a motorbike as they come out of a past a Tata Motors car plant at Sanand in Gujarat, October 27, 2016.Amit Dave/File Photo

Foreign carmakers like VW, General Motors and Fiat Chrysler have struggled in India where more nimble rivals such as Maruti Suzuki and Hyundai Motor have cornered two thirds of the market.

Tata, which is also struggling to boost sales, has been trying to turn round its loss-making domestic business by modernising its products, improving efficiency and streamlining its organisation.

In May, General Motors said it would stop selling cars in India from the end of this year, drawing a line under two decades of battling in one of the world's most competitive markets where small cars make up the bulk of sales.

India is expected to become the world's third-largest car market by 2020 but passenger vehicle sales have slowed in recent months due to policy changes and a new nationwide sales tax.

In 2009 VW attempted to break into the low-cost car market in India by forging a tie-up with Suzuki Motor Corp but the deal failed due to cultural and business differences and was ended in 2015 following a fierce legal dispute.

The German group is looking for new overseas markets as it struggles to draw a line under its emissions scandal. In China VW has been working with joint venture partner FAW on an economy car and is planning to build affordable electric vehicles with JAC Motor from next year.

"We haven't been able yet to claim a share of the booming business with cheap small cars and Tata means another setback in that respect," a senior VW brand manager told Reuters. "But VW has changed a lot structurally since the Suzuki debacle, so we'll keep trying."

The breakdown of talks with Tata was mainly for economic reasons rather than differences over control, as the AMP architecture turned out to be too expensive, the VW source said.

A push by VW group headquarters to decentralize power after the dieselgate scandal and assign greater responsibilities to the individual brands and business regions for vehicles and technology will help VW find the right partner, the manager said, without being more specific.

With additional reporting by Aditi Shah in New Delhi; Editing by Georgina Prodhan, Greg Mahlich

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