VW Acquires 20% Stake in Suzuki; India Exposure

123jump.com Staff
09 Dec, 2009
New York City

Volkswagen AG and Suzuki Motor acquire stakes in each other as the German auto maker looks for growth in small car segment in India. VW will pay $2.5 billion for nearly 20% stake in Suzuki. Only a decade ago VW had questioned the need to be in India and relied on China and Brazil of sales increase.

[R]7:00 PM Tokyo – Volkswagen AG and Suzuki Motor acquire stakes in each other as the German auto maker looks for growth in small car segment in India. VW will pay $2.5 billion for nearly 20% stake in Suzuki.[/R]

Volkswagen AG agreed to acquire 19.9% stake in the Japanese small car maker Suzuki Motor Corp with a significant presence in India.

Volkswagen agreed to pay 222.5 billion yen or $2.5 billion and Suzuki will acquire a 1.3% minority holding in the German automaker of 50 billion yen. VW will become the largest stake holder in Suzuki.

The growth in emerging markets has been the only bright spot in the global auto industry. Auto sales in China, Brazil India and Russia have been robust as the middle class grows and demand for small car increase.

Volkswagen has a significant presence in Brazil through its joint venture with Ford Motor Company and is the second largest foreign automaker in China. However the German automaker has not got traction in India as it lacks a small car model that is popular in India.

Through its majority controlled company Maruti Suzuki Motor sells more than 50% of 1.2 million cars sold in India. The auto sales are expected to grow at more than 30% in the next three years as consumers look to buy cars that cost less than $6,000 and take advantage of easily available cheap financing.

Only a decade ago VW had publicly questioned the viability of Indian auto market and decided to focus on Russia and China.

Volkswagen is paying top dollar for a stake in Suzuki after its stock ran up more than 85% in less than one year.

The combined sales of VW and Suzuki of 8.4 million will top the total sales at Toyota Motor of 7.7 million. Toyota has struggled in India and South America where Suzuki and VW have gained leadership.

Both companies agreed to set up offices in each other’s headquarters.

VW this week also completed its 49.9% acquisition in Porsche SE. General Motors had been the largest stake holder in Suzuki until 2006 and has been selling its stake in the company and reducing its ties in international markets as well. Suzuki acquired GM stake in 2008 and plan to use the proceeds from VW to repay 100 billion yen of dent and spend 122.5 billion yen for research and development.