Isuzu does not consider an equity tie-up with Volkswagen

Article by Christian A., on April 24, 2011

Talks are ongoing between Isuzu Motors Ltd. and Volkswagen AG to come to a truck engine supply deal, according to a report from the Nikkei business daily. However, Isuzu was quick to deny that there was an equity tie-up being planned. Reportedly, the two companies want to close the deal this autumn.

The Japanese carmaker and the German auto group are expected to sign a confidentiality agreement and begin full-scale talks. Isuzu has yet to either confirm or deny that these talks have started with Volkswagen with regards to cooperation in engine supply and technology. Isuzu pointed out that it will consider a range of options on operational cooperation.

According to the report from Nikkei, Isuzu will be supplying seven-liter-class diesel engines for midsize trucks; and three-liter-class diesel engines for commercial vans and small trucks built by the Volkswagen group.

Volkswagen is expected to supply engine control and body safety technologies that have been fitted in the passenger cars for the next generation pickup trucks by Isuzu. The Nikkei said that this exchange will help Volkswagen to reduce costs and cut prices, vital for raising market share in growing countries.

With this tie-up, Volkswagen is able to compete better with segment leader Daimler AG. Depending on the outcome of the negotiations, it’s possible that the two will think about acquiring stakes in each other.

In early April, Volkswagen said that a decision on a possible stake in Isuzu was not on the schedule after a German magazine revealed that it was thinking about buying a portion or the entire thing.

In 2009, the Volkswagen group, including MAN SE and Sweden's Scania AB, sold about 113,000 midsize and large trucks. The Nikkei report stated further that figure would increase to about 145,000 units if Isuzu's sales are included.

The partnership between Volkswagen and Suzuki was formed in 2009 as VW was seeking to boost its presence in the small car segment in India. The German carmaker was targeting to gain greater access to the Indian market, wherein Suzuki is considered as a major player. Suzuki controls Maruti Suzuki India Ltd., which produces half of all cars that are being sold in India. This would boost VW’s presence in Asia as it aims to become the biggest carmaker in the world by 2018.

On the other hand, Japanese carmaker was seeking access to hybrid and diesel technologies that proved to be costly to develop by just itself.

In 2010, Volkswagen became the biggest shareholder at Suzuki when it took a stake of 19.89 percent for JPY222.5 billion ($2.86 billion). Suzuki, on the other hand, purchased a stake of 1.49 percent at VW.

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Topics: isuzu, volkswagen

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