Volkswagen to take 19.9% stake in Suzuki Motors; deal to close in Jan 2010: DJ

Volkswagen, Suzuki signs framework agreement in Tokyo. According to the agreement, Volkswagen will take 19.9% stake in Suzuki Motors. Volkswagen, Suzuki deal will close in January 2010, reports CNBC-TV18 quoting DJ.

Volkswagen and Suzuki have agreed to establish partnership. In the tie-up, both will complement each other in products, distribution and manufacturing. Companies are planning joint approach to manufacturing environment friendly cars. They will remain independent as a standalone entity. They will offer smaller cars, engines with higher fuel efficiency and engines with lower CO2 output.

Volkswagen said that Suzuki will invest up to half of VW buying price in VW shares. Volkswagen, Suzuki will remain independent. Suzuki said that it will sell own shares to Volkswagen for Y 2,061/sh. The company said that it will raise Y 222 billion from own share sale. Volkswagen, Suzuki see synergies in growth markets. Suzuki holds 54% stake in Maruti Suzuki.

Both will help each other in production and development of fuel-efficient, low-emission vehicle technologies. The tie-up with Suzuki will help World No .2 Volkswagen’s to outpace Toyota as the world’s largest auto maker by 2018. Suzuki has over 60% market share in India and has a 75% share in small hatchbacks.

VW has Audi, Skoda in its group and they share simliar parts, optimising processes for all copmponents example engines sharing, sharing plant facilities for manufacturing etc.

VW has 1.5% market share in India and the company targets to increase it to 10% by 4-6 years. VW has set up a plant in Chakan with a capacity of 1.1 lakh units, and it will be scaled up to the full utilisation in 4 years. VW sold 18,000 cars in India last year. VW India has about 500 vendors, localisation of 60% for most of its cars. VW sold 6.3 m cars last year globally. It is number 2 player globally. Toyota sold 9.9 m cars last year globally and current gap is between 1.5 m units.

VW strengths are quality, performance, state of art engineering and future tech and cost effectiveness, huge focus on R&D. Suzuki’s strengths are huge presence in small car, sourcing engines from Fiat-GM which are very cost efficient.

Suzuki Official said that the company will get access to bigger markets with VW tie up. However, there is no clarity whether Suzuki will get money from the stake sale. Suzuki may reinvest the amount into VW.

It further said that Suzuki will get access to technology which is very expensive if it is done independently. Suzuki will be able to derisk itself in a competitive environment by tying up with a big global player like VW, it added.

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