Volkswagen and Suzuki team up

VOLKSWAGEN and Suzuki have announced an alliance that will give Europe’s largest car-maker unrivalled access to India’s burgeoning automotive market and could accelerate a new round of global auto industry restructuring.

According to a joint statement from the German giant and Japanese small-car specialist yesterday, Volkswagen AG will by a 19.9 per cent share in Suzuki Motor Corporation by January 2010, while Suzuki will also acquire a stake in Volkswagen.

Although no financial details have been revealed, the statement said Suzuki “intends to invest up to one half of the amount received from Volkswagen into shares of Volkswagen”.

“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,” said the statement.

Both companies said they had “reached a common understanding to establish a close long-term strategic partnership” and will “establish a cooperative relationship while respecting each other's independence as a stand-alone entity.

“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,” said VW and Suzuki in the joint announcement.

Left: The Suzuki Splash. Below: VW E-Up! concept.



“The companies plan a joint approach to the growing worldwide demand for more environmentally friendly vehicles.

“In terms of product portfolio, global distribution and manufacturing capacities, Volkswagen and Suzuki ideally complement each other.” Said Volkswagen CEO Martin Winterkorn: “Two of the world’s leading car-makers are joining forces and preparing to meet the growing challenges that lie ahead.

“Together we can maximise our opportunities for growth. We are proud to be cooperating with such an esteemed and valued partner.” Earlier this week Volkswagen announced it had formally purchased 49.9 per cent of Porsche and will acquire all of the German luxury sports car maker by 2011, making Porsche its 10th brand.

The head of VW's supervisory board, Ferdinand Piech, has previously said he sees VW eventually owning 12 brands.

The deal brings with it a significant cash injection for a Japanese maker whose sales are down 52 per cent in the US so far this year – one of the worst performances by a mainstream brand there in 2009 – but which still reported a healthy operating profit in 2008 and, unlike most of its rivals, is expected to do so again this year.

Having parted ways with General Motors, Suzuki also stands to gain valuable access to diesel and hybrid technologies via its partnership with Volkswagen, along with important access to the European market and a share in VW’s fortunes.

For its part, however, Volkswagen, which is already the market leader in China – now the world’s largest single auto market – will gain unparalleled production volume in the rapidly growing Indian market, in which it was also one of the first outsiders to penetrate.

With 53 per cent of the market, Suzuki is already the dominant auto brand in India and along with its local affiliate Maruti Suzuki and their two plants has the capacity to produce up to one million vehicles a year.

While Suzuki used only about a third of that capacity, Volkswagen can now produce about 110,000 vehicles in India, giving it massive potential to grow.

Less than two weeks ago Suzuki also announced had committed ¥20 billion ($A251 million) to the construction of a new plant in Thailand’s Rayong province, potentially giving VW an even wider footprint in Asia.

Suzuki – which owns 35 manufacturing plants in Japan and nations including Indonesia, China and Spain, and last year employed a workforce of about 51,000 – is expected to build 10,000 examples of its Splash light-car in Thailand by the end of 2012.

One Japanese analyst has also predicted the Volkswagen-Suzuki alliance could be the first in a series of new auto alliances that reshape the global industry.

“The alliance may accelerate a reshuffle of grouping of the industry,” Mizuno Credit Advisory auto analyst Tatsuya Mizuno told the AFP news agency.

“The global auto industry is now facing a turning point. The global auto industry was weathering the crisis and is now entering into a new stage,” said Mr Mizuno.

Earlier this month France’s PSA Peugeot Citroen group and Japan’s Mitsubishi Motors Corporation said they are exploring deeper ties, which have so far been limited to product-sharing projects such as the Outlander/4007 and i-MiEV/iOn.

Suzuki last week also announced it had ended its Canadian joint-venture assembly operation with GM, known as CAMI, with Suzuki selling its 50 per cent stake to GM in a move that severs another tie between the partners.

In its 2008/2009 financial year ending March 31, Suzuki sold 2.3 million vehicles and 3.1 million motorcycles, generating sales revenue of $33.86 billion and an operating profit of $865.2 million.

In fiscal year 2008 Volkswagen, which has a workforce of 370,000 and 61 plants globally, sold 6.3 million vehicles, generating sales revenue of $184.38 billion and achieved an operating profit of $10.2 billion.