Volkswagen buys a piece of Suzuki, eyes world's largest automaker crown

Volkswagen AG (VLKAY) is on its way to becoming the world's largest automaker.

On Wednesday, the maker of the popular Beetle and Jetta models agreed to purchase a 20 percent stake in Suzuki Motor Corp. for $2.5 billion, which will help it gain a foothold in emerging markets like China and India. If the vehicles produced by Suzuki are counted, third-place Volkswagen would be in a neck-and-neck race with first place Toyota Motor Corp. (TM), Edmunds.com senior analyst Michelle Krebs tells DailyFinance. General Motors Corp. (GRM) is currently in second place.
Meanwhile, Volkswagen gobbled up Porsche earlier this year, adding to its already-formidable lineup of brands, including Audi, Bentley and Czech manufacturer Skoda. The company is building a new plant in Chattanooga, Tenn., which is scheduled to be running by 2011. Volkswagen executives have said there are no plans to delay the plant's opening despite the worldwide slump in auto sales.

Volkswagen was hurt for years in the U.S. by perceptions that its vehicles were of poor quality. That reputation is starting to change and Volkswagens are now "significantly improved," Krebs said. Volkswagen's market share is still small, under 2%, where it was during the late 1980s. Sales are improving thanks to its well-regarded diesel vehicles, which account for about one-quarter of its sales. TV commercials featuring the the talking Beetle with a German accent as thick as sauerbraten seem to be working. A Volkswagen spokesperson could not be immediately reached for comment.

The company realizes the challenges it faces.

"As you know, an entrepreneur isn't just someone who creates a new business," Stefan Jacoby, the head of Volkswagen Group of America, said in a recent speech at Duke University. "It can also be someone who redefines an existing business. That is what my colleagues and I are trying to do at the Volkswagen Group of America. We intend to reclaim Volkswagen's place as a leading brand in the U.S. market. "

During the late 1960s, Volkswagen made some of the most popular vehicles in the U.S. Beetles and Microbuses were symbols of the counterculture, like peace signs and love beads. The brand began to fade in the late 1970s and in 1987 the company announced that it would close its plant in New Stanton, Pennsylvania.

"For a long time, they did not have the right products," Krebs said,

Volkswagen hopes to sell 800,000 units in the U.S. by 2018, which is a pretty tall order considering the automaker sold 163,196 vehicles this year as of November. It also aims to triple its sales in China by that time. But given the state of the car industry, time is on its side. Volkswagen may make additional acquisitions as car companies bite the dust because of the recession.

"Certainly their aim is to be number one in the world by 2018," Krebs said. "They certainly have a shot at it."

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