Volkswagen to buy 20% stake in Suzuki

Suzuki on Wednesday said it will sell 19.9 per cent stake to Germany's Volkswagen for about $2.5 billion. The cross-border deal is expected to have a positive fall-out for Suzuki subdivides worldwide, which could become hubs for supplying small cars through Volkswagen's strong network.

Suzuki confirmed the deal, but it is too early to speculate on its implications on Suzuki's subdivisions. The deal means Volkswagen and Suzuki see much value in the arrangement in terms of technology sharing. Volkswagen has looked at Suzuki obviously from a small car angle, says a Suzuki spokesman.

Although details are yet to be worked out, he said India may become an original equipment manufacturer and supplier of small cars for Volkswagen. Suzuki Motor said its strengths are in producing small-size vehicles and having the support of customers in Japan, Southeast Asia, and Asia as a whole.

It said the two companies -- Suzuki and Volkswagen -- will focus on emerging markets and making environmentally friendly cars. The Japanese company said the world automotive industry is in the midst of significant changes where manufacturers risk being left behind in the market if they are late in adopting environmentally friendly hybrid and electric cars.

Both Suzuki and Volkswagen are focused on achieving synergies in the areas of rapidly growing emerging markets as well as in the development and manufacturing of innovative and environment friendly compact cars, Suzuki said in a statement. . . . even with existing gasoline and diesel powered cars, it is necessary to improve engines and make the automobile frames lighter to improve fuel efficiency and decrease the output of carbon dioxide, it added.

It also said that new low-cost automobiles that undercut previous market prices are being introduced for emerging markets, making it necessary to reduce costs. Suzuki said the transaction will involve transfer of around 108 million ordinary shares to Volkswagen and the deal is expected to be finalized next month.

The closing of the transaction is subject to approval of the relevant authorities and is expected in January 2010, Suzuki said, adding, Suzuki intends to invest up to one half of the amount received from Volkswagen into shares of Volkswagen.