The German auto giant agrees to pay $2.5 billion for a stake in Japan's fourth-biggest automaker, which is tops in India
By Makiko Kitamura and Andreas Cremer
(Bloomberg) — Volkswagen, Europe's largest carmaker, agreed to buy a 19.9 percent stake in Suzuki Motor Corp. for 222.5 billion yen ($2.5 billion) and jointly develop vehicles for emerging markets to challenge global leader Toyota Motor.
VW and Suzuki plan to develop hybrids and electric vehicles under both car brands, Suzuki Chief Executive Officer Osamu Suzuki said today at a joint press conference with VW in Tokyo. Suzuki will buy as much as 50 billion yen in Wolfsburg, Germany- based VW's ordinary shares, while VW will become the top shareholder in Hamamatsu, Japan-based Suzuki.
Suzuki controls Maruti Suzuki India Ltd., the maker of half of all cars sold in India, and VW is the second-biggest overseas automaker in China, which is set to surpass the U.S. as the world's largest car market this year. Combined annual worldwide sales of the two manufacturers will exceed 8 million cars, accelerating VW CEO Martin Winterkorn's goal of toppling Toyota City, Japan-based Toyota in deliveries by 2018.
&quo;The automobile industry is going through a fundamental shift,&quo; Winterkorn told reporters. &quo;Alliances are at the top of the agenda and they are indispensable for competition. The global crisis has speeded up this reorganization.&quo;
Volkswagen rose 86 cents, or 1.1 percent, to 79.75 euros at 3:28 p.m. in Frankfurt, valuing the automaker at 30.3 billion euros ($44.6 billion). Suzuki added 3.5 percent to close at 2,370 yen in Tokyo before the announcement. Maruti Suzuki, the carmaker 54.2 percent owned by Suzuki Motor, gained 2.7 percent to 1611.1 rupees in Mumbai.
A decline in worldwide auto sales this year is prompting carmakers to form alliances and shift investment to emerging markets, which have withstood the slump amid economic growth and government subsidies.
PSA Peugeot Citroen, Europe's second-biggest carmaker, and Japan's Mitsubishi Motors Corp. are in talks to deepen a strategic partnership that may involve an equity investment, the companies said last week. Fiat SpA, Italy's top automaker, acquired a 20 percent stake in Chrysler Group LLC in June.
Suzuki, Japan's fourth-largest carmaker, forecasts global sales of 2.3 million vehicles in the fiscal year ending March 31. Volkswagen's Winterkorn said Nov. 25 that 2009 deliveries may &quo;slightly&quo; surpass last year's record 6.23 million vehicles. The combined figure exceeds Toyota's sales estimate of 7 million for the current fiscal year.
Volkswagen and Suzuki have been discussing a partnership since June, a person familiar with the matter has said. Serious talks began in September, and Winterkorn visited Suzuki's headquarters and factories last month, Osamu Suzuki said today. The transaction is subject to regulatory approval and will probably be completed by January, the companies said.
The carmakers plan to set up offices at each other's headquarters. Detlef Wittig, a 36-year Volkswagen veteran who is in charge of sales, will be VW's representative at Suzuki.
&quo;This is clearly the next step in going head to head with Toyota,&quo; said Christoph Stuermer, a Frankfurt-based automotive analyst with IHS Global Insight. The cross shareholding is a &quo;very wise choice&quo; because it allows Suzuki to &quo;keep its face&quo; while opening the door to Volkswagen, he said.
Based on VW's market value, a 50 billion-yen investment would give Suzuki a 1.3 percent stake in the German carmaker.
Volkswagen Supervisory Board Chairman Ferdinand Piech has said he wants to bolster the company with additional brands. The company this week completed the purchase of a 49.9 percent stake in Porsche Automobil Holding SE's carmaking unit, adding the maker of 911 sports cars as its 10th brand. Among Volkswagen's other marques are Skoda, Audi, Seat and Bentley.
&quo;Volkswagen is like a department store carrying everything from luxury brands to truckmakers,&quo; Koji Endo, managing director of Advanced Research Japan in Tokyo. &quo;What they're missing is any presence in India and Southeast Asia. The point of partnering with Suzuki is to grab India.&quo;
Passenger-car sales in India rose 61 percent last month, the biggest gain in more than five years. Car sales in China surged 42 percent in the first 11 months of this year to 12.2 million.
&quo;A Suzuki deal would be a bit more game-changing than Porsche,&quo; said Philippe Houchois, an analyst with UBS AG in London. In the Porsche transaction, &quo;Volkswagen is paying full price in an area where it's already strong — Europe and luxury cars.&quo;
VW CEO Winterkorn has a 10-year goal of increasing VW-brand deliveries by 80 percent to 6.6 million vehicles by 2018. As part of the Porsche transaction, VW has received shareholder authorization to sell as many as 135 million preferred shares, valued at 8.7 billion euros at market price.
Suzuki is known for its minicar models, including the WagonR and Carry vehicles, which are sold mainly in Japan, as well as for its Swift hatchback and Jimny small sport-utility vehicle.
The company began making cars in India in 1983 through a partnership with the government. Suzuki took a majority stake two decades later, just before the venture, now called Maruti Suzuki India, was listed in Mumbai.
Suzuki has been cutting ties with General Motors Co., which owned a 20 percent stake in the Japanese carmaker until 2006. Suzuki said Dec. 4 that it will sell its 50 percent stake in a Canadian joint venture to the Detroit auto company. GM first invested in Suzuki in 1981 and Suzuki completed a purchase of its own shares from GM last year.
The Japanese company said it plans to use 100 billion yen of the proceeds from VW to repay debt, and 122.5 billion yen for research and development.
To contact the reporters on this story: Makiko Kitamura in Tokyo at firstname.lastname@example.org; Andreas Cremer in Berlin at email@example.com.