VW-Suzuki deal will boost profile in Asian markets

Volkswagen AG will buy a 20 per cent stake in Suzuki Motor Corp for US$2.5 billion ($3.45 billion), forming one of the world's biggest car alliances and giving the two carmakers a boost in fast-growing Asian markets.

Suzuki, which makes small cars such as the Swift and Alto, said it would also buy shares in VW worth up to half the amount the German maker buys, solidifying the partnership through cross-holding of equity.

The Japanese carmaker said the companies plan to complete the deal, which would make VW its top shareholder, by mid-February. The two companies said their combined global sales surpassed 8.6 million cars last year, exceeding the 7.5 million sold around the world by the Toyota Motor Corp, the world's No 1 carmaker.

The deal comes just days after VW announced it had bought an initial 49.9 per cent stake in Porsche AG for US$5.9 billion.

The alliance with Suzuki will encompass product development, production and sales and focus on hybrid and electric cars, Suzuki said.

Suzuki, which is smaller than domestic peers such as Toyota and Honda, said it was difficult to stay competitive given quickly developing automotive technology and the need for cost cuts, making a partnership necessary.

"The world automotive industry is in the midst of significant changes," Suzuki said. "It is difficult to adapt to these numerous issues on our own."

Suzuki chairman and chief executive Osamu Suzuki, in a joint news conference with his new partner, said: "We must move with the times."

The tie-up will allow the two companies to concentrate on each other's strengths while compensating for each other's weaknesses, Suzuki said, without elaborating.

For the German company, the alliance is "a big step forward in the compact car segment, particularly on the emerging markets in Asia", said VW chief executive Martin Winterkorn. "In turn, Suzuki can benefit from our experience with efficient and environmentally friendly vehicle technologies."

They could also boost their presence in expanding markets, Suzuki said. Suzuki has nearly half the market share in India, while Volkswagen is strong in China, as well as South America and Europe, the Japanese company said.

Suzuki's alliance with VW replaces its earlier partnership with General Motors. Struggling GM sold a 17 per cent stake in Suzuki in 2006 and its remaining 3 per cent stake last year amid the global slump, ending an affiliation that dated to 1981. Suzuki and GM also agreed to end their joint venture in Canada last week.

Meanwhile, VW's 49.9 per cent stake in Porsche is the first step in a planned takeover of the sports car company by 2011.

The two companies initially announced their intention to merge in May, after a previous attempt by Porsche to take over the larger VW failed. The combination of the two companies "follows a compelling strategic, industrial and financial logic", which will result in tighter co-operation and synergies, VW said.

By bringing Porsche on board Volkswagen will be able to "further expand its position in the premium business, which offers particularly strong earnings," VW said.

In turn, Porsche would have the potential for significant additional growth.

- AP