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VW's Plan To Rule The World

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On: Wed, Dec 9, 2009 at 11:38AM | By: John Welch

VW's Plan To Rule The World

Welp, they're gonna own us all one day. Volkswagen, I mean. Earlier this year the fiesty automaker declared its intentions to be the world's number one car manufacturer by 2018. And then VW set about doing just that. They purchased a 49.9% stake in Porsche and then moved on to consuming companies with strong Indian and Chinese presence. Suzuki, for instance. Look at the big brain on Dieter!

Volkswagen AG announced today that it will buy a one-fifth stake in Suzuki Motor Corp. for $2.5 billion. Look out, Toyota, you're bleeding in the water and thar's sharks about.

The blockbuster deal involves a 19.9% stake in Suzuki Motors, but, as Suzuki Chairman Osamu Suzuki is quick to point out, it does not mean Suzuki is going to become VW's 12th "brand." "I don't want you to misunderstand, Suzuki is not becoming a 12th brand for Volkswagen," Suzuki said when asked whether the company might see Germanic leadership in the future. "I don't want other folks telling me how to do things."

The VW-Suzuki deal will see Suzuki invest up to half the proceeds from cross-shareholding through the roughly 100 billion yen ($1.13 billion) purchase of a 2.5 percent voting stake in VW.

Japan's Mitsubishi Motors Corp. and PSA/Peugeot-Citroen of France said this month they were exploring deeper ties, which have so far been limited to a project-based partnership, not a trading of company assets.

"This comes right after the Mitsubishi deal and shows that foreign carmakers are coming to take stakes in Japanese firms, raising expectations of a reorganization in the autos sector," said Noritsugu Hirakawa, a strategist at Okasan Securities.

In contrast to a potential pair-up between PSA and Mitsubishi Motors, which many regard as a union of the weak, Volkswagen and Suzuki are regarded as being among the stronger automakers thanks to their big exposure to China and India.

Shares in Maruti Suzuki, India's top carmaker and 54 percent-owned by Suzuki, rose as much as 3.8 percent on Wednesday.

The smartest part of this corporate mash-up is certainly the effect it has on the Indian and Chinese markets, the two fastest growing car markets in the world. Already the largest brands in India, Maruti Suzuki and Volkswagen are set to co-develop small cars for these markets. Shared cost, shared labor, and market share all tier together nicely. Maruti Suzuki is currently the leader in India, by a long margin, and VW has done well for itself considering the competition coming to the region from the likes of Tata and Nissan/Renault. Both companies plan region specific (in the case of Tata, their 'Nano' renders the word "plan" past tense) micro-cars, a segment firmly dominated by Maruti Suzuki products. Currently this is the market to be in, and the VW/Suzuki partnership creates the largest entity in the region.

In the first six months of 2009, Volkswagen sold 3.265 million vehicles and Suzuki sold 1.15 million. Their combined sales of 4.415 million units would be larger than top-ranked Toyota's 3.564 million. Stew on that for a minute. American brands want to get back into this fight? Phhhssshhh, good luck, chumps.

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