Welcome to the future of the global auto industry. The tie-up of Germany's Volkswagen and Japan's Suzuki Motor not only immediately creates the world's number one car alliance by volume. If this initial cross-shareholding leads eventually to deeper integration, it could become the world's biggest auto group, unseating Toyota – and so fulfilling VW's aim. It could also prove a model. Faced with overcapacity, fragile demand in developed markets and the need for huge investment in low-emission technologies, carmaker alliances are surely the way ahead.
This deal's strategic benefits are clear. VW, already the largest foreign passenger carmaker in China, gets a foothold in the other great auto growth market, India. Maruti Suzuki, of which Suzuki owns 54 per cent, has about half the Indian car market. VW also gets access to expertise in small, cheap cars. And it is buying its 19.9 per cent stake fairly cheaply – at a 10 per cent discount to yesterday's closing Suzuki share price, equating to an enterprise value of about 47 per cent of 2009-10 sales, below the Asian manufacturer average. Suzuki gets a cash injection, plus VW's hybrid technology, an area in which it lags.
A niggling concern is whether VW is biting off more than it can chew – alongside a costly merger with Porsche, and potentially consolidating its trucks business with MAN and Scania. Arguably, by taking a minority stake in Suzuki, without the demands of actual integration, it should not overstretch itself. Meanwhile, Credit Suisse suggests the shortage of VW ordinary stock means Suzuki, to make its cross-purchase of a 2.5 per cent voting stake in VW, may have to buy Porsche's remaining VW options or VW shares from Porsche's controlling families. Another deft manoeuvre by Ferdinand Piëch, the VW chairman who comes from one of those families.