Toyota should fear VW-Suzuki deal

Traders take note: This partnership has big repercussions for Wall Street and shares of Toyota.

By Louis Navellier Dec 10, 2009 2:52PM

Louis Navellier Volkswagen plans to buy a 20% stake in Suzuki for about $2.5 billion, with the Japanese carmaker to invest about half as much back in VW.


U.S. traders might think the partnership doesn't affect them, since these stocks aren't listed on American exchanges. But the reality is that the deal between the auto giants has big repercussions for Wall Street -- and specifically for shares of Toyota Motor Company (TM) and its suppliers in the U.S. and abroad.

 

If we've learned anything from the financial crisis, it's that we live in a very interconnected world, and the problems and successes overseas have a very real impact on our economy at home. Just because Volkswagen is traded on Germany's stock exchange and Suzuki is listed in Tokyo doesn’t mean the U.S. can ignore the news.

 

Here are three ways I expect the VW-Suzuki deal to hurt Toyota.

 

No longer #1: The first problem for Toyota is the sheer size of the partnership. VW and Suzuki said their combined vehicle sales topped 8.6 million last year, easily eclipsing the 7.5 million in global sales that Toyota (TM) racked up as the No. 1 carmaker. A footprint like that should have TM execs shaking in their shoes.

 

Hybrid Dominance Threatened: From the details of this alliance, it appears that Volkswagen and Suzuki will share in product development, production and sales to focus on hybrid and electric cars going forward. As the hybrid Prius has vaulted Toyota to unprecedented heights, an erosion in the dominance of the Prius and other Toyota hybrids could really hurt this company and cause shareholders to view TM in a negative light. With combined resources, VW and Suzuki will really give Toyota a run for its money.

 

A Faltering Competitor Saved: With Chrysler and GM bankrupt, Toyota has been able to step into the void and really gobble up market share. The recession had hit Suzuki equally hard, and the smaller carmaker had a lot of trouble fending off TM and fellow Japanese powerhouse Honda (HMC).


The company couldn't stay competitive given quickly developing automotive technology and the need for cost cuts, and was rapidly approaching a breaking point. The partnership with VW keeps Suzuki afloat -- meaning the company won't be ceding its sales to Toyota.

 

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