VW Will Buy Nearly 20 Percent of Suzuki Motors

By KBB.com Editors on December 9, 2009 1:53 PM

Days after announcing that it had finalized the long-developing deal to take a 49.9-percent ownership stake in Porsche, Volkswagen AG confirmed that it would be acquiring a 19.9-percent position in Japanese carmaker Suzuki Motor Corporation. The VW-Suzuki linkup was made public at a joint press conference in Tokyo, where the two indicated they "have reached a common understanding to establish a close long-term strategic partnership" and signed a "comprehensive framework agreement" that will allow each to leverage their respective strengths most effectively. The statement went on to say that both parties are focused on achieving synergies in the areas of rapidly growing emerging markets as well as in the development and manufacturing of innovative and environmentally friendly compact cars. The particulars on the deal, still subject to final regulatory approval but expected to close in January, include VW buying 19.9 percent of Suzuki's outstanding issued shares, and Suzuki reinvesting up to half of the projected $2.5 billion in new revenues in shares of VW. While both parties stress that Suzuki will remain an independent entity, there's already speculation that the German automaker will become a more dominant influence over time.

This latest move should pay solid dividends for VW, which currently owns or controls 10 other marques and has publicly stated that it intends to overtake Toyota as the world's leading auto manufacturer by 2018. Despite being a major global presence, VW lags noticeably behind in emerging markets, specifically India, where the Maruti Suzuki organization dominates with over 50 percent of the total industry volume. Although it remains a modest presence in the U.S. and ended its equity partnership with General Motors in 2008, Suzuki enjoys a far higher profile elsewhere. It ranks a solid fourth in overall domestic-market sales, largely on the strength of its leadership in "kei" class cars -- micro-vehicles with 660cc engines. Suzuki products are also extremely popular in many other Southeast Asian countries. In return for being able to tap into Suzuki's proven expertise in making and marketing those types of growth-segment vehicles, Volkswagen's CEO, Martin Winterkorn, expects that his firm's strongest contribution will come in form of expertise in the area of developing clean, efficient powertrains -- both conventional and hybrid/EV.