The Volkswagen Group fired its first volley in what is expected to be an eventual full takeover of Japan minicar specialist Suzuki Motor Corp. by assuming a 20 percent share of Suzuki for $2.5 billion, the companies jointly announced Wednesday from Tokyo.
Volkswagen’s initial stake is expected to lead to eventual full ownership of Suzuki (de facto management control would come with a 33 percent or greater share of the company) as VW drives to surpass Toyota Motor Corp. as the world’s No. 1 automaker. Suzuki’s automotive production last year of about 2.4 million vehicles would put VW well on the way toward that goal.
Eventual ownership would make Suzuki the eleventh brand under the VW umbrella. Volkswagen currently is in the complicated process of taking controlling ownership of Porsche AG after reversing an incredibly costly, debt-financed feint by Porsche to take over VW.
But VW’s takeover of Porsche comes with an estimated price tag approaching $24 billion, which likely is why VW and Suzuki announced Wednesday that VW — for now — is acquiring only a 20 percent portion of Suzuki.
Closer to the Endgame
Suzuki is a minicar expert, but its sales volume, when eventually added to the Volkswagen Group’s 10-brand total, would boost VW tantalizingly close to Toyota.
Last year, Toyota sold just shy of 9 million vehicles. Volkswagen ranked third in the world with nearly 6.25 million sales. If the situation remained static as the industry recovers from the global recession (it won’t, of course), Suzuki’s added volume would bring VW to within less than a half-million units of surpassing Toyota.
Volkswagen has said it wants to be the global automotive leader by 2018, but the full acquisition of Suzuki could considerably accelerate that timeline.
All About Emerging Markets
The VW-Suzuki tie-up is almost entirely complimentary as the companies both seek to enhance their presence in regions such as China and India, widely viewed as the industry’s most likely growth markets in the coming years.
Suzuki has a strong market and manufacturing presence in rapidly growing India, for example, thanks to a strong alliance with the country’s Maruti, which accounts for half of all the passenger vehicles sold in India.
But Suzuki is much less well represented in China and presumably can leverage VW’s longstanding success and solid reputation in that market.
Most vital for VW is a need for a low-cost manufacturing base for its pending Up subcompact; the company reportedly wants to initiate production in India, then expand Up manufacturing to China and Thailand. And VW also may seek to leverage considerable portions of Suzuki’s lower-cost componentry for the Up, scheduled to go on sale in late 2011.
The story in the U.S. is vastly different, however. In fact, a VW takeover could mean an end to Suzuki auto sales in the U.S., as VW doesn’t need any more small-car competitors in the U.S. market, even one tracking to move less than 40,000 vehicles this year. Volkswagen might choose to take over any Suzuki showrooms in desirable retail locations and fold the struggling auto-sales operations.
Deal Has Extra Value
Suzuki might benefit from VW’s powertrain expertise — Suzuki hasn’t done much with hybrids, electrics, or diesel — but also VW’s reputation for high-quality interior finishes, not a strength for Suzuki, whose models always have served the budget end of the market.
Volkswagen might also leverage Suzuki’s extensive motorcycle engineering experience as the auto industry — particularly in developing third-world markets — is projected to increasingly delve into “less is more” types of vehicle architectures and technologies that either drastically reduce the price or can mitigate the environmental impact