Maruti Suzuki dominates the Indian market.
Volkswagen AG will buy 19.9% of Suzuki Motor Corporation for $2.5 billion, which in turn will reinvest half of the proceeds in VW stock it was announced in Frankfurt and Tokyo today. If the transaction is approved by regulators, VW would become the largest shareholder of Suzuki.
The latest crossholding, obtained at a more than 10% discount to the price of publicly traded Suzuki shares, is clearly designed to bolster VW’s efforts in Southeast Asia auto markets, long dominated by Toyota Motor Corporation.
VW is the leader in China, where Toyota has a growing presence, but is locked out of Japan and has a weak presence in India where Suzuki is the dominant player through its control of Maruti, which has 50% of the market.
Asia is the only growth market for automobiles in the world, as European and American economies continue to languish.
Toyota is locked in to struggle with VW for the title of the world’s largest automaker.
The difference between the two companies is that VW is profitable and using the cash generated to make strategic alliances, while Toyota is retrenching and attempting to return to profitability after posting record losses.
Suzuki, for its part, said that it is not big enough to develop new low cost models, as well as the low CO2 emissions models that will require expensive hybrid and electric technologies.
“For a manufacturer involved in the production and sales of our size, it is difficult to adapt to these numerous issues on our own,” Suzuki said.
“As demand continues to rise for smaller cars and for powertrains with higher fuel efficiency and lower CO2 output, Volkswagen and Suzuki will offer a compelling solution for customers in emerging markets buying a car for the first time and also for customers in advanced economies seeking to lower their CO2 footprint while still enjoying the freedom of transport offered by an exciting range of cars,” VW said on a statement.
It remains to be seen if VW can successfully manage its growing number of brands, including recently acquired Porsche and struggling SEAT.