Volkswagen Aktiengesellcraft and Suzuki Motor Corporation have reached a common understanding to establish a close term strategic partnership. A framework agreement has been signed by representatives of both companies today.

The tie-up between the two car makers will create challenges to Toyota Motor Corporation, world’s largest automaker in terms of sales, and the deal is likely to trigger further realignment in the global auto industry.

Suzuki intends to rely on Volkswagen to develop eco-friendly vehicles such as gasoline-electric hybrids and electric cars, an area in which the Japanese company is lagging behind rivals, local analyst said.

Under their agreement, Volkswagen will acquire a 19.9 percent stake in the Japanese carmaker. Suzuki will sell its share to Volkswagen for around 222.48 billion yen under a third-party allotment to be carried out from mid-January. The Japanese carmaker is also expected to buy shares in Volkswagen by spending up to half of the money received from the German automaker.