With an eye on India, one of the fastest growing car markets, Europe's largest carmaker Volkswagen AG is acquiring a 19.9-per cent stake in Japanese car maker Suzuki Motor Corporation, the parent company of India's largest pasenger car maker, Maruti Suzuki,  for 222.5 billion yen ($2.5 billion.

The Wolfsburg -based VW said today that it has reached a common understanding with Suzuki to establish a close long-term strategic partnership and signed a framework agreement for developing and manufacturing energy-efficient small cars in emerging markets.

Volkswagen will acquire 19.9 per cent of Hamamatsu-based Suzuki's issued shares.

In turn, Suzuki plans to invest up to half of the amount received from Volkswagen into Volkswagen shares.

Both companies said that the closing of the transaction is subject to approval from the relevant authorities and is expected in January 2010.

As demand continues to rise for smaller cars and for powertrains with higher fuel efficiency and lower CO2 output, VW and Suzuki said that they will offer a compelling solution for first time buyers of car in emerging markets and also for customers in advanced economies seeking to lower their CO2 footprint.

''Two of the world's leading car makers are joining forces and preparing to meet the growing challenges that lie ahead. Together we can maximise our opportunities for growth. We are proud to be cooperating with such an esteemed and valued partner,'' said VW CEO Martin Winterkorn.

Osamu Suzuki, chairman of Suzuki said, ''We were very much impressed about the enthusiasm of Volkswagen towards manufacture of splendid automobiles. The companies shall cooperate taking advantage of the strength of the other with the maximum consideration to the global environment. We will also continue to extend our utmost efforts for customer satisfaction.

For VW, which yesterday moved forward in its multi-stage integration with Porsche SE by acquiring a 49.9-per cent stake in the luxury sports car maker for $5.8 billion, (See: Volkswagen buys 49.9 per cent in Porsche for $5.8 billion), the partnership with Suzuki indicates that the European car maker intends to aggressively expand in the global market and dethrone the world's largest automaker Toyota in the future. 

In July, VW achieved record global sales in the first half of the year on strong demand in India, Russia and China, by selling nearly 3.3 million vehicles. VW saw the biggest increases in India with a 69 per cent increase, Russia with 63 per cent and China with a 23 per cent increase.

In the first 10 months of this year, Suzuki sold 1.91 million vehicles and Volkswagen 5.32 million. Their combined global sales of of 7.23 million exceed Toyota's global sales of 6.36 million vehicles.

China is VW's second-largest market after Europe. Its Chinese subsidiary, Volkswagen Group China, is the largest joint venture automaker in the middle kingdom.

Suzuki is the 9th largest automobile manufacturer in the world by production volume, with 35 main production facilities in 23 countries.
Maruti Suzuki India Limited is Suzuki's largest and most valuable subsidiary with an annual production of 626,071 units in 2006 and currently holds a market share of approximately 52 per cent.

In the automotive industry, where globalisation and diversification move in tandem, both companies said that they would establish a cooperative relationship while respecting each other's independence as stand-alone entities. Both parties are focused on achieving synergies in the areas of rapidly growing emerging markets as well as in the development and manufacturing of innovative and environmentally friendly compact cars.

Within the emerging markets, China and India are seen as biggest market for new cars with sales seeing a 42 per cent growth in China in the first 11 months of this year to 12.2 million, and a 61 per cent rise in November alonr in India.

Suzuki said that in terms of global presence and product diversity, the partnership marks an important step towards the future for both VW and Suzuki. Auto analysts say in terms of product portfolio, global distribution and manufacturing capacities, VW and Suzuki ideally complement each other.