Western & Asian Car Company Alliances

Several car companies that have made it through the worst of the global recession are now looking for ways to position themselves ahead of their competition. One trend in the industry seems to be consolidation and at least three major deals have been announced recently; GM & Chinese partner SAIC, VW & the Japanese company Suzuki, and French Peugeot-Citroën & Japanese Mitsubishi. All of these moves seem to be motivated by Western car companies' desire to gain influence in emerging markets.

For example, the largest deal of the bunch is Volkswagen’s announcement on Wednesday December 9th that it has agreed to pay $2.5 billion for 19.9% of Suzuki. Suzuki has a 54% stake in Maruti Suzuki an Indian company that controls 40% of that nations highly competitive car industry. VW has been late to the game in India and is surely hoping to have more of an influence there.

Another important aspect of these partnerships is the shift in focus from large cars to small cars targeted towards poor consumers. The change in emission laws and uncertain oil prices have caused an increased demand for more compact cars. Emerging markets in countries such as India are increasing demand for smaller, more inexpensive cars. VW is hoping to learn tactics for successfully selling smaller cars from their partnership with Suzuki, one of the only two successful makers of small, inexpensive cars worldwide.

These strategies of partnering with overseas competitors might be the only lifelines left for struggling Western car companies to survive. We will have to wait and see whether it works.

The Economist Article

-Group 3