 Volkswagen Aktiengesellschaft and Suzuki Motor Corporation have reached a common understanding to establish a close long term strategic partnership. Representatives of both companies have signed a framework agreement. Marking an important step towards the future for both companies in terms of product portfolio, global distribution and manufacturing capacities, Volkswagen and Suzuki would ideally complement each other, and as part of the plan, would work on a joint approach to the growing worldwide demand for more environmentally friendly vehicles. The managements of Volkswagen and Suzuki have concluded that the complementary strengths of each company make for a perfect fit in exploiting their respective advantages as well as rising to the challenge of the global market.
In the automotive industry, where globalisation and diversification proceed in parallel, both companies will establish a cooperative relationship while respecting each other’s independence as a stand-alone entity. Both parties are focused on achieving synergies in the areas of rapidly growing emerging markets as well as in the development and manufacturing of innovative and environmentally friendly compact cars.
To support a smooth development of this relationship, Volkswagen will purchase 19.9 per cent of Suzuki’s issued shares. The closing of the transaction is subject to approval of the relevant authorities and is expected in January 2010. Suzuki intends to invest up to one half of the amount received from Volkswagen into shares of Volkswagen. Both companies will form a long-term strategic partnership based on this, which will support their successful strategies in these challenging times. 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.
India is expected to play an important role in this venture as Volkswagen seeks a greater share of the small car market with its Polo and Suzuki, through its Indian venture Maruti, is already a small car leader. While experts opine that Volkswagen would help Suzuki to reach out to modern, highly efficient and environment friendly powertrain technologies – especially diesel, Suzuki could offer Volkswagen its long standing experience and know-how in small cars. Commanding over 54 per cent of the Indian market share at present, Maruti is said to know the pulse of the Indian small car buyer like no one else does. Something that Volkswagen would not like to upset in a hurry while it penetrates the small car market, which is also the most volume oriented. Having a comprehensive sales-service network in the country in addition to having a supplier base, which it developed as it stepped into India with the 800 in 1984, Maruti at its new facility in Haryana currently manufactures the 1.3-litre common-rail small diesel engine licensed by Fiat, and which is found on the Maruti Swift/Swift Dzire and Ritz.
With the new development it needs to be seen how this arrangement will fall into the scheme of things at Suzuki. As part of the thrust to turn Suzuki's Indian operations into a global small car hub, Maruti was alloted 700 acres of land by the Haryana government for a proposed research and development facility at Rohtak. This venture is estimated to amount an investment of up to Rs 1000 crore.
Interestingly, the agreement is also said to be a step toward forwarding Volkswagen's ambition to displace Toyota from the number one position. Limiting its resources in India to invade the SUV, MPV and luxury car market until now, Toyota has been working on a strategic small car (to premiere at the 10th Auto Expo) with manufacturing facilities spread across continents and countries, including a supplier base spread across the respective locations. While India will play as the hub for Toyota's strategic small car, supported by heavy investments by the Japanese automaker in India at Bidadi near Bangalore, the upcoming Chennai facility of Renault-Nissan alliance will be one of the five facilities spread across India, China, Thailand, Americas and a yet to be identified fifth location to manufacture the Nissan's new small car on the V-platform. Two out of three variants are earmarked by the alliance for India. Similar is said to be the case with Toyota even as Fiat, the Italian major, which embarked on a similar journey with the 178 (Palio) Platform way back in 1996, is working on a small car for the Indian market. Hyundai too has signalled plans to introduce a small car in India, positioned below its compact car, Santro.
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