TOKYO - Volkswagen AG will buy a 20 per cent stake in Suzuki Motor Corp. for 222.5 billion yen (US$2.5 billion), forming one of the world's biggest auto alliances and giving the two carmakers a boost in fast-growing Asian markets.
Suzuki, which makes small cars such as the Swift and the Splash, said Wednesday it will also purchase shares in Volkswagen worth up to half the amount the German maker buys, solidifying the partnership through cross-holding of equity.
The Japanese automaker said the companies plan to complete the deal, which would make Volkswagen its top shareholder, by mid-February.
The two companies said their combined global sales surpassed 8.6 million cars last year, exceeding the 7.5 million sold around the world by the Toyota Motor Corp., the world's no. 1 automaker.
The alliance will encompass product development, production and sales and focus on hybrid and electric cars, Suzuki said.
Suzuki, which is smaller than domestic peers such as Toyota and Honda, said it was difficult to stay competitive given quickly developing automotive technology and the need for cost cuts, making a partnership necessary.
"The world automotive industry is in the midst of significant changes," Suzuki said in a statement. "It is difficult to adapt to these numerous issues on our own."
"We must move with the times," Suzuki Chairman and Chief Executive Osamu Suzuki said in a joint news conference with his new partner.
The tieup will allow the two companies to concentrate on each other's strengths while compensating for each other's weaknesses, Suzuki said, without elaborating.
For the German company, the alliance is "a big step forward in the compact car segment, particularly on the emerging markets in Asia," Volkswagen Chief Executive martin Winterkorn said. "In turn, Suzuki can benefit from our experience with efficient and environmentally friendly vehicle technologies."
They could also boost their presence in expanding markets, Suzuki said. Suzuki has nearly half the market share in India, while Volkswagen is strong in China, as well as South America and Europe, the Japanese company said.
Suzuki's alliance with Volkswagen replaces its earlier partnership with General Motors Co.
Cash-strapped GM sold a 17 per cent stake in Suzuki in 2006 and its remaining three per cent stake last year amid the global slump, ending an affiliation that dated to 1981. Suzuki and GM also agreed to end their joint venture in Canada last week.
Under that deal, the companies ended their 23-year automaking joint venture in Canada, as Suzuki sold its 50 per cent stake to GM in the CAMI Automotive Inc. plant in southwestern Ontario.
The price tag of the deal, which gives GM full control of production of one of its hot-selling new vehicle lines, was not disclosed.
The sale ends a relationship that began in the late 1980s when the partners built the CAMI plant located in Ingersoll, near London, but leaves GM without a Japanese production partner.
GM ended its California car-making joint venture with Toyota Motor Corp., the world's No. 1 automaker, earlier this year.
CAMI, originally known as Canadian Automotive Manufacturing Inc., was established in 1986 and launched production in 1989. It has capacity to make 250,000 vehicles a year.
Suzuki shares rose 3.5 per cent in Tokyo, even as the broader market fell. Shares of Volkswagen were up 1.7 per cent at C80.47 ($118) in Frankfurt late Wednesday morning.
