Volkswagen taking over a 19.9 per cent stake in Suzuki must rank among the great deals of the century. Somebody at Wolfsburg certainly had the foresight to look at Suzuki and say, "Hmm, that Japanese manufacturer looks enticing!" But why?
You really have to scratch under the surface. Suzuki is pretty much one of two companies in the world that can build quality small cars at a very competitive price on a large scale - the other being Hyundai. Suzuki's know-how in small car building is legendary, which is why they contract manufacture for other Japanese firms like Nissan and Daihatsu-Toyota. Volkswagen's biggest stumbling block has been what Carlos Ghosn would term "lack of frugal engineering" skills. They build quality cars for sure, but to build them to a cost and still enjoy good margins hasn't necessarily been its strength. That should be reason enough for VW to buy a stake in Suzuki, isn't it? It isn't.
VW is very strong in China and Europe but lacks that sort of presence in North America. And to top it all it is just making its foray into India, one of the world's fastest growing car markets. Add the current ratio of 17 vehicles for every 1000 people and India has really strong potential. Suzuki is the market leader in India with 25 plus years of experience, a staggering 53 per cent market share and a bottomline whose contribution is 20 per cent of Suzuki's total worldwide operations. It has an installed capacity of nearly a million units and very high brand recall. India, it seems is one of the strongest reasons why this deal has gotten through.
For Volkswagen, the cost benefits will be immense, not just in India but across the world. Small cars could benefit from platform sharing, and even component sourcing - the latter being Suzuki's strength. Suzuki will lay its hands on VW's immense range of diesel engines that currently start from 1400cc and go up to 6000cc, thus not having to depend on the sole Multijet diesel engine that it has. It also means access to diesel engine tech that is Euro V ready and beyond, thus slashing any development costs. VW also gets access to sub-1.2-litre petrol engines and that means one of those Suzuki engines could power the upcoming VW small car, the Up!. In India, VW could tap into Suzuki's vast supply chain that has been created to mass produce components at ultra-competitive rates over the years and therefore a significant cost saving for VW in India and abroad. It could also spill over to their after-sales business, but it's too early to speculate. But to top it all, VW can now boast of a motorcycle manufacturer too in its fold, thus completing the whole range of cars, commercial vehicles (remember Scania) and two wheelers (VW at several points looked at acquiring MV Agusta and/or Ducati).
There's a lot we don't know about which will get clearer in the days to come as the two companies detail out their plans and their outlook for the future. But the biggest question is who will benefit the most? That is something only time can decide.
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