Volkswagen AG and Suzuki Motor Corporation on Wednesday said they had agreed “to establish a close long-term strategic partnership”. A framework agreement was signed by both automakers today.
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The pair said each had complementary strengths and would work together where there would be benefits from doing so while retaining the independence of each company.
“In terms of product [lines], global distribution and manufacturing capacities, Volkswagen and Suzuki ideally complement each other. The companies plan a joint approach to the growing worldwide demand for more environmentally friendly vehicles,” they said in a statement.
“The management of Volkswagen and Suzuki have concluded that the complementary strengths of each company make for a perfect fit in exploiting their respective advantages as well as rising to the challenge of the global market.”
“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.
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By GlobalDataVolkswagen will purchase 19.9% of Suzuki’s issued shares in a transaction expected to be completed in January. Suzuki, in turn, will invest up to half of the amount received from Volkswagen in VW shares.
Suzuki said the stake was worth about JPY222.5bn (US$2.53bn; EUR1.72bn).
“Both companies will form a long-term strategic partnership based on this which will support their successful strategies in these challenging times,” the statement added.
VW and Suzuki added they would offer “a compelling solution for customers in emerging markets buying a car for the first time and also for customers in advanced economies seeking to lower their CO2 footprint while still enjoying the freedom of transport offered by an exciting range of cars” as demand continues to rise for smaller cars and for powertrains with higher fuel efficiency and lower CO2 output.
Suzuki has considerable expertise in small cars and small engines and is Japan’s leading maker of sub-660cc minicars. It has approximately 51,000 employees and sold 2.3m vehicles and 3.1m motorcycles in the 2008/2009 financial year.
It operates 35 production facilities in Japan and other countries such as Indonesia, India, China, Thailand and Spain.
Volkswagen makes a full line of vehicles from city cars to large luxury SUVs, recently developed its first in-house one tonne pickup and specialises in low-emission diesel engines.
In fiscal year 2008 Volkswagen, which employs 370,000, sold 6.3m vehicles. It has 61 production plants worldwide.
The deal is the latest in a series of alliances – PSA Peugeot Citroen has been talking about a stake in Mitsubishi and the Renault–Nissan alliance said last month it would launch “an ultra low-cost car” in India in 2012 to take on Tata’s Nano.
Tokyo-based auto analyst Tatsuya Mizuno at Mizuno Credit Advisory told AFP “the alliance may accelerate a reshuffle” in the industry.
“The global auto industry was weathering the crisis and is now entering into a new stage” where strong offers of small, environmentally friendly cars will be important, Mizuno said. “For VW, Suzuki is attractive as Suzuki is strong in small car businesses in developing countries, in particular India.”
VW chairman Martin Winterkorn told a Tokyo news conference that “Suzuki is a world leader in the compact and sub-compact car segment, and Suzuki is one of the world’s leading motorcycle manufacturers.”
“The company is very strong in Japan and Southeast Asia and [Maruti-Suzuki] is by far the number one car maker on the Indian market.”
The chairman of the Japanese company, Osamu Suzuki, praised VW’s “exquisite advanced technologies” and strong positions in Europe, South America and China. “Suzuki, on the other hand, has the advantage in manufacturing low-cost compact cars,” he added in a statement.
AFP noted that investors cheered news of the deal, and VW shares today rose 2.14% to EUR80.58 in early morning trading on the Frankfurt stock exchange, while the DAX index of German blue-chips was 0.4% lower overall.
Tokyo markets had closed when the deal was announced.
General Motors pulled out of Suzuki last year after the US auto giant was hit by the global financial crisis, ending an alliance that started in 1981.
Last week, it said it was selling its stake in the CAMI joint venture assembly plant in Canada to GM.
Mizuno told AFP that “after ending its alliance with GM, Suzuki needed to find a strong partner in order to survive tough competition in the global market.”
For VW, the agreement is another step in its plan to overtake Toyota as the world’s biggest automaker by 2018.
“Eight to 10 years from now, we want to become number one in the world, and I believe that we’ll be able to accelerate that into happening with cooperation with Suzuki,” Winterkorn said.
Suzuki’s chairman said the Japanese company seeks to become an “equal partner” with the German automaker, not one of the brands owned by it.
”We will seek cooperation where necessary, but we are intent on going forward independently,” Suzuki added.
VW has just bought 49.9% of Porsche and will take it over by 2011, making Porsche its 10th brand.
The head of VW’s supervisory board, Ferdinand Piech, has said he sees VW eventually owning 12 brands, and the group is also interested in the German heavy-vehicle maker MAN which could complement its Swedish truck unit Scania.
VW already owns around 30% of the shares in MAN and could aim to create a strong commercial vehicle division with the two companies, AFP added.
Reuters said ordinary shares in Volkswagen rose 1.1% and preference shares 0.4% European analysts welcomed the alliance and cross-shareholding.
“The industrial logic seems clear, with Suzuki’s strength in two of VW’s weakest spots,” Commerzbank analyst Daniel Schwarz told the news agency.
LBBW analysts Frank Biller said: “For VW we see a move forward to get better small car technology especially for the VW up! and good market presence in the emerging markets.
“From a strategic standpoint the deal makes absolute sense and it is at a very reasonable price,” he added.
“VW’s acquisition of Suzuki shares will form an alliance which should help address structural weaknesses in two fundamentally strong companies,” IHI Global Insight analyst Tim Urquhart said in a note.
“The long-rumoured association between VW and Suzuki looks set to come to fruition and will see the two carmakers form an alliance that will give VW a much enhanced presence in Asia and in the minivehicle market, while Suzuki will also gain access to VW’s unparalleled development resources.”
