Signs for a VW-Porsche 914 car are pictured at a car dealer in Bochum May 7, 2009. The car was a joint production of Volkswagen and Porsche between circa 1969 and 1976. (Reuters Photo / Ina Fassbender)

Possible plans by Volkswagen to cooperate with Suzuki Motor raised an enthusiastic response among investors on Friday, but traders said the main focus at VW remained firmly on Qatar.

A source familiar with the matter had told Reuters on Thursday that Volkswagen exploring a deal to cooperate with the Japanese automaker to boost its presence in ultra-small cars. [ID:nLP51283]

Investors cheered the prospect of ties between the two automakers, which have weathered the slump better than many rivals on their emerging markets presence, as a proactive move to fill an expected demand for smaller cars in coming years.

The ultra-small car segment is expected to grow substantially through high demand in emerging markets such as India and potential demand in mega cities, said MM Warburg analyst Marc-Rene Tonn.

Auto demand in developed markets such as North America, Japan and Europe has yet to recover from a global recession which prompted customers to tighten their purse strings.

German publication manager magazin said Volkswagen could secure a cooperation deal by taking a 10 percent stake in Suzuki. A spokesman for Suzuki said he had not heard anything about a potential tie-up, while Volkswagen declined to comment.

VW shares rose 3.7 percent at 251 euros by 1258 GMT, making them the biggest gainer on Germany's blue-chip index .GDAXI, making.

Traders said VW shares, which ended 3.7 percent lower on Thursday after news of the Suzuki tie-up, had regained Wednesday's momentum when they jumped 11 percent after sources said sportscar maker Porsche was advancing towards a deal with Qatar to give the Gulf state a shareholding in Volkswagen.

It is much more the possible interest from Qatar (that is driving interest in VW). That's really the story of the day for VW, a Frankfurt-based trader said.

Shares of Suzuki, meanwhile, had ended up 5.5 percent at 2,195 yen after rising as much as 7.7 percent to a 10-month high. Tokyo's auto index .ITEQP.T gained 0.3 percent.

A possible tie-up would mark the second attempt for Europe's top automaker and Japan's No.4 carmaker, which in 1992 agreed to jointly develop small cars. That deal ultimately fell through.

Cooperation with Suzuki, which dominates Japan's 660cc minivehicle market along with Toyota's Daihatsu Motor Co, could yield a new model for VW below the upcoming New Small Family range of cars, the source said.


So far, the ultra-small car market is largely undeveloped outside of Japan. India's Tata Motors has developed and will launch this year its Nano model, the world's cheapest car, to win new customers for whom cars used to be unaffordable.

Volkswagen could benefit from an alliance by increasing its product line-up in the ultra-small car segment ... Suzuki could benefit from VW's know-how regarding diesel engines, said MM Warburg's Tonn.

Suzuki already has a broad range of projects with rivals, including an original equipment manufacturing deal with German brand Opel. It also produces diesel engines using licensed technology from Italy's Fiat.

Suzuki Chief Executive Osamu Suzuki has repeatedly said he would welcome any calls for cooperation, acknowledging that his company lagged in hybrid and other fuel-saving technology.

Suzuki has fared much better than its domestic rivals thanks to its focus on the relatively steady 660cc microcar segment in Japan, and its dominance in India, its biggest market.

Volkswagen is China's top seller, while Suzuki is No.1 in India through majority-owned Maruti Suzuki India.