VW keen on buying Suzuki stake

Volkswagen AG, Europe’s largest carmaker, is interested in buying a stake in Suzuki Motor Corp to gain access to the Japanese manufacturer’s small-car technologies, according to a person familiar with the situation.

The two companies have been discussing a partnership since June, said the person, who asked not to be identified because the talks are confidential. A 20 per cent holding in Hamamatsu, Japan-based Suzuki is being discussed and a deal could be announced as early as this week, Reuters reported, without identifying its source of information.

Suzuki shares have risen 86 per cent this year in Tokyo, valuing a 20 per cent stake at $2.8 billion. Volkswagen Supervisory Board Chairman Ferdinand Piech has said he wants to bolster VW with additional brands. Wolfsburg, Germany- based Volkswagen this week completed the purchase of a 49.9 per cent stake in Porsche Automobil Holding SE’s carmaking unit.

“A Suzuki deal would be a bit more game-changing than Porsche,” said Philippe Houchois, an analyst with UBS AG in London. “Volkswagen is paying full price in an area where it’s already strong – Europe and luxury cars” in the Porsche transaction, while Suzuki would give VW more small- car technology as well as a position in emerging markets, he said.

Suzuki Chief Executive Officer Osamu Suzuki said the companies were negotiating an alliance, Nikkei English News reported today. No decision has been made on a capital tie-up, Suzuki said in a statement. Christine Ritz, a spokeswoman at Volkswagen, declined to comment.

As part of its merger with Porsche, VW, whose other brands include Audi, Skoda and Bentley, has shareholder authorization to sell as many as 135 million preferred shares, valued at €8.7bn ($12.8bn) at market price.

Suzuki is known for its minicar models, including the WagonR and Carry vehicles, which are sold mainly in Japan, as well as for its Swift hatchback and Jimny small sport-utility vehicle. Suzuki and Toyota Motor Corp’s Daihatsu Motor Co subsidiary dominate sales of the tiny-car segment, which is helping the two Japanese manufacturers expand in emerging markets such as India.

Volkswagen Chief Executive Officer Martin Winterkorn has a 10-year goal of increasing VW-brand deliveries by 80 per cent to 6.6 million vehicles by 2018. The German manufacturer also wants to overtake Toyota City, Japan-based Toyota, the world’s biggest carmaker, in global deliveries and profit margins by 2018.

Suzuki could give Volkswagen access to the growing Indian car market, which has withstood the global recession and rose the most in five years last month. The Japanese automaker’s Maruti Suzuki venture makes half the cars in India. VW plans to double workers at its new factory in Chakan, India, to 2,500 as it ramps up production, Ulrich Proske, the finance chief of VW’s Indian unit, said in a December 7 interview.

VW, which sold about 16,000 vehicles in India from January through October, is targeting more than 100,000 deliveries a year in the “long term,” Proske said. The Indian market will grow to 2.2 million cars and SUVs by 2014 from 1.4 million this year, the executive said.

Suzuki has been cutting ties with General Motors Co, which owned a 20 per cent stake in the Japanese carmaker until 2006. Suzuki said on December 4 that it will sell its 50 per cent stake in a Canadian joint venture to the Detroit auto company. GM first invested in Suzuki in 1981 and Suzuki completed a purchase of its own shares from GM last year.

After GM failed to make its partnership with Suzuki work, there’s a concern that Volkswagen could tie up capital without getting any control over Suzuki, which has “a strong culture and a strong tradition of independence,” UBS’s Houchois said.