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VW powers ahead in Asia with Suzuki deal

Volkswagenhas secured an expanded presence in India and Japan with a deal to buy a fifth of Suzuki Motor in a tie-up that will boost the German carmaker's foothold in the small car market.

The move, announced yesterday, came in the week that VW bought 49.9 per cent of Porsche for €3.9bn (£3.5bn) and marked another step in chairman Ferdinand Piëch's drive to build a global group. VW and the Japanese group would buy each others' shares and co-operate "while respecting each other's independence", the German carmaker said.

It said that it would buy 19.9 per cent of Suzuki's shares and the Japanese carmaker would invest up to half the amount it received for the shares to cement the alliance. The deal is due to be completed in January. Martin Winterkorn, VW's chief executive, said the agreement could help it leapfrog Toyota as the world's largest carmaker before 2018. "If that succeeds faster [than 2018], we're happy," he said. Toyota sold 8.6m vehicles in 2008, and VW and Suzuki between them sold 8.4m, according to consultancy IHS Global Insight.

The announcement came only days after France's PSA Peugeot Citroën said it was buying a stake in Mitsubishi Motors, another Japanese carmaker, as part of an expanded partnership. The moves suggest a long-expected round of consolidation in the car industry may now be under way. The recession has put pressure on carmakers to seek alliances, but with the exception of Fiat's partnership with Chrysler, little has happened so far this year.

VW, like others, needs to expand its portfolio of small cars and its presence in Asia - now the global car industry's most important region - even as it copes with slumping sales in many of its markets. Suzuki is an industry leader in very small cars and, through its Maruti Suzuki subsidiary, claims about 50 per cent of the Indian market. Suzuki recently ended a partnership with General Motors, which sold the last of its 20 per cent stake of the family-controlled carmaker last year. Suzuki agreed this week to offload its half of the companies' Canadian venture to GM.

Analysts said the move might only be a first step that could presage a future full takeover if the co-operation proves successful. "Both sides want to figure out if they can work together but in the long run a full integration of Suzuki is a realistic scenario, said Max Warburton, Sanford Bernstein analyst.

Source: Financial Times

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