Just days after Volkswagen solidified its hold on Porsche to shore up the top end of the company’s brand-swallowing strategy, it made a deal to acquire 19.9 percent of Japan’s Suzuki for two and a half billion-with-a-b dollars (US).
Does that seem like a lot of money for just one-fifth of what is in world-wide terms a pretty small company?
Not when you consider that two and a half billion is about what it costs to develop a new product line these days, and Suzuki has several, one of which - the Wagon R, pictured below left - has been the top-selling vehicle in Japan for approximately ever.
Suzuki often doesn’t get the credit it deserves for this remarkable accomplishment, because its products compete mainly in the so-called ‘kei’ (sub-660 cc engine displacement) class, which are not sold in North America. The sub-compact Swift and SX4, small SUVs and the soon-to-be-released Kazashi mid-size sedan which Suzuki does/will sell here are but minor blips on the company's main business world-wide.
Suzuki is perhaps unique in the industry, being profitable building nothing but teeny-weeny cars, which almost by definition have to be sold at low-margin prices. A GM executive who worked with Suzuki on a joint venture some years ago rolled his eyes when I commented on the nice quality of the steering wheel in that Asia-only product.
“You wouldn’t believe how hard we had to work to get that in there,” he said. “These guys are SO tight with every penny.”
But that is exactly the discipline VW needs to succeed in the micro-car market. VW got its start by building small affordable cars for the masses, but a manufacturing base in Germany - even augmented by low-wage operations in Brazil or Mexico - simply cannot compete.
Another positive aspect of the marriage is that Suzuki’s Murati division in India has over 50 percent market share in that growing economy, and is also strong throughout South-East Asia, including Pakistan and Indonesia.
This makes a great fit with VW’s strong position in the other growing Asian giant car market, China.
In return, Suzuki gains much-needed capital to continue its product development process, plus access to VW’s hybrid, Diesel and other advanced technologies.
The Japanese outfit has recently divorced from General Motors, among other things selling off its share in the Tillsonburg Ontario joint venture plant to GM. It has also terminated its association with Fiat, which created the SX4 / Fiat Sedici siblings.
Wheels readers may not be too familiar with the MAN brand name. It’s a German manufacturer of large trucks, and Volkswagen is pursuing it as well to fill in another gap in its product line.
Another intriguing possibility was raised in the British newspaper The Financial Times the other day. Sergio Marchionne, the Toronto-raised head of Fiat and, now, Chrysler, is well-known for his bottom-line orientation, rather than gasoline-in-his-veins car-guy enthusiasm. Pay your way or die seems to be his mantra.
Despite having a gorgeous range of new cars and a magic history, the fact is that Fiat’s Alfa Romeo band is struggling. Sales, expected to be around 300,000 annually, are closer to a third of that, and even a oft-delayed return to the North American market isn’t likely to shove that needle very far.
According to this analysis, VW Chairman Ferdinand Piech - who IS an uber-car-guy - would snap up the Alfa brand. The theory is that currently, VW’s up-scale Audi has to compete both with BMW for sporty customers, and Mercedes for more comfort/luxury oriented shoppers. If Alfa were added to the mix, it could take on BMW, while Audi would be freed to focus on Mercedes.
The realities and possibilities of these VW acquisitions are all consistent with VW’s stated goal of overtaking Toyota as the number one selling car maker in the world by 2017. Indeed, it could speed that process up by several years.
The nagging question: too many brands was perhaps the single biggest mistake General Motors made, which led to its recent bankruptcy.
Can Volkswagen make it work where GM could not?