Germany’s Volkswagen (VW) is buying a minority stake in the Japanese carmaker Suzuki in what is widely seen as the first step towards an all-out merger.

The deal, which is due to be completed by February next year, will see

VW purchasing a 20% stake in the Japanese company for US$2.5 billion (£1.5 billion).

Suzuki said it would acquire a stake in VW in return, spending “up to one half” of the funds it receives on the VW shares.

In a joint statement the two carmakers said that they had “reached a common understanding to establish a close long-term strategic partnership”.

According to reports, the German motor industry giant wants to become the world’s largest carmaker by 2018, ahead of current leaders Toyota and General Motors.

An alliance between the two carmakers, VW and Suzuki, would sell more cars than Toyota, currently the world’s largest carmaker.

Between the two sold they about 800,000 more cars than Toyota during the first half of this year, industry reports say.

But to cement such a leading position, Volkswagen must build strong positions in the world’s fastest growing markets.

Volkswagen is already strong in China, whilst Suzuki is a powerful player in India through its controlling stake in Maruti Suzuki.

Analysts said that VW was keen to utilise Suzuki’s expertise in making small, fuel efficient cars.

“Two of the world’s leading carmakers are joining forces and preparing to meet the growing challenges that lie ahead,” said VW chief executive Martin Winterkorn in a release.

“Together we can maximise our opportunities for growth.”

During the January to June period this year, Volkswagen’s and Suzuki’s combined sales reached 4.4 million units, well ahead of Toyota’s 3.6 million cars sold.

According to industry reports analyst Chizuko Satsukawa, of Standard & Poor’s, said the deal would give Suzuki welcome access to investment funds.

“Financially speaking, it’s helpful for Suzuki to have a partner to invest in future technologies,” said Satsukawa who give comments on the car industry.

Last month, Suzuki tripled its forecast for full-year operating profits.

Meanwhile, Germany’s Volkswagen AG announced Monday it has purchased an initial 49.9 percent stake in fellow car maker Porsche AG, carrying out a move that it had been expected to make this week.