Volkswagen and Suzuki have formed an alliance where VW will have 19.9 percent stake in Suzuki. The new alliance has now announced that it will be developing a brand new small car for the Indian market that will be priced between Rs. 2 – 2.5 lakh. Suzuki intends to phase out its best selling model Alto from India. It will introduce a brand new model where VW will benefit from Suzuki’s small car platform and the latter will get VW’s diesel engine technology. Suzuki currently sources its diesel engine from Fiat which are fitted in Swift and Dzire models.

Volkswagen currently has Up! as its cheapest model in its product portfolio. It intends to have a still cheaper model priced between Euro 2000- 2500 that it will sell in the European markets. Suzuki has M800 as its cheapest model which will be phased out from April 2010 when new emission norms come into effect. Maruti Suzuki is developing a new engine that can be fitted in M800 but the whole process will take at least two years. This means MSIL will not have new M800 model before 2012.

Volkswagen will be launching its hatchback model Polo next year after the Delhi Auto Expo. Later it will also launch Polo sedan model in the Indian market. It is planning to capture larger market share in India and also make India as its small car manufacturing and export hub.