Suzuki, Volkswagen agree to capital tie-up

THE ASAHI SHIMBUN

2009/12/9

Suzuki Motor Corp. announced Wednesday it has agreed to a capital tie-up with German giant Volkswagen AG.

The move would create the world's largest automobile-producing alliance.

Under the agreement, Volkswagen will purchase 19.9 percent of Suzuki's issued shares while Suzuki will purchase a stake in Volkswagen with a maximum of 50 percent of the sum paid by the German carmaker, Suzuki officials said.

Volkswagen has shown a keen interest in tying up with Suzuki, which has a strong foothold in the Asian market, particularly India, according to industry watchers. For its part, Suzuki is hoping to take advantage of Volkswagen's edge in environmental technology, they said.

The production output of such a partnership would eclipse current industry leader Toyota Motor Corp.

Between January and October Volkswagen sold 5.32 million vehicles, compared with 1.91 million units for Suzuki. With combined sales of 7.23 million vehicles, the alliance would overtake Toyota, which sold 6.36 million vehicles during the same period.

A marriage between the companies would create a group uniquely poised to capitalize on demand in emerging economies. Volkswagen has a strong presence in the Chinese and Brazilian markets, while Suzuki boasts a roughly 50 percent share of India's passenger car market.

Suzuki, which has its roots in a weaving loom manufacturer established in 1920, reigned as the nation's top maker of minicars, with engine displacements of up to 660cc, between fiscal 1973 and fiscal 2005. It relinquished the top position to Daihatsu Motor Co. in fiscal 2006.

In 1981, Suzuki forged a capital tie-up with General Motors Corp., with the latter at one point holding a 20-percent stake. However, with the sharp fall in auto sales following the global financial crisis beginning in the fall of last year, GM sold all of its shares back to Suzuki by the end of 2008.

Last week, GM and Suzuki announced they would dissolve a manufacturing joint venture in Canada, further weakening ties between the companies.

Suzuki has also fallen behind its competitors in the development of eco-friendly vehicles. The company had been searching for a partner to share the high costs of developing technology from scratch, but with little success.

Fierce competition in the auto industry, particularly in the fields of eco car development and low-priced vehicles for emerging economies, has prompted other automakers to seek out possible alliances.

Mitsubishi Motors Corp. has been wooing PSA Peugeot Citroen for a possible capital injection.

Suzuki reported consolidated net sales of 3.005 trillion yen in the business year ending March 2009, and a net profit of 27.4 billion yen. As of the end of March the company had 50,613 employees.

Volkswagen, established in 1937 as a state-operated manufacturer, had net sales of 113.8 billion euros (about 14.8 trillion yen) in the business year ending in December 2008, and a net profit of 4.6 billion euros. As of the end of September, the company had about 367,000 employees.(IHT/Asahi: December 9,2009)