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It is a season of alliances for Japanese automakers

Murali Gopalan | Updated on January 16, 2018

Making the transition Japanese automakers are changing the way business is done in the country’s auto sector

Toyota and Suzuki are the latest in a growing list aimed at consolidation

It was barely a week ago when Honda and Yamaha announced a strategic alliance for small scooters in Japan.

On Wednesday, Toyota and Suzuki said they were coming together in a technological partnership. Some months earlier in May, Nissan bailed out a beleaguered Mitsubishi which had its back to the wall following a scandal on fudged mileage data.

This chain of events is unusual in a country whose key automotive participants have generally been the exceptions in a rapid global wave of consolidation. Sure, Osamu Suzuki, Chairman of Suzuki Motor, is no stranger to alliances given his company’s first high profile outing with General Motors (GM) many years ago was followed more recently by a disastrous teaming up with Volkswagen (VW).

Likewise, Nissan needed a lifeline from Renault in 1999 to stay afloat and the equity crossholding has worked like a charm since then. One could, in fact, argue that it is the Japanese ally which has grown stronger over the years and is pivotal to the alliance today.

But then, these are the rare exceptions where the Japanese have pretty much kept to themselves barring the occasional technological alliances with western counterparts. This is equally true for neighbouring Korea where Hyundai and Kia have operated in tandem without a fuss while SsangYong is owned by the Mahindras.

The prominent exception in Japan was Suzuki, which perhaps realised that a small player like itself needed a stronger ally on board. At one point, it was actually exploring the idea of roping in GM to steer its India innings jointly at Maruti once the government relinquished its stake. This may have well happened had GM not changed course and acquired Daewoo which had gone bankrupt.

Yet, this did not deter Suzuki from its intent of scouring for a larger partner and this is when VW entered the picture in 2009. Here was this formidable German carmaker which had made no bones about its ambition to be the world’s top player by 2018. Its comparatively smaller Japanese partner was a force to reckon with in markets like India which continued to elude VW.

The sky was clearly the limit except that the partners just could not see eye to eye with each other and it was a visibly relieved Osamu Suzuki who welcomed the divorce and compared it to clearing a tiny bone from his throat!

These are early days for Suzuki and Toyota but there are no two ways about the fact that it is a significant initiative. The world’s most powerful carmaker has only just set in motion to make Daihatsu its wholly owned arm, which could be a key growth engine for markets like India. Now, with Suzuki in tow, it will be interesting to see how the script pans out.

Perhaps, an equity alliance cannot be ruled out either though this will mark a huge step for Toyota. Suzuki has not managed to optimally leverage its past associations with either GM or VW. At one point, it seemed as if it would tilt towards Fiat given the convergence in expertise of small cars but clearly it made sense to opt for a much stronger partner. The common Japanese DNA between the two will also make it relatively simpler to discuss a host of issues.

In the case of Honda and Yamaha in two-wheelers, it is ironical that two fierce rivals have actually kissed and made up though in all fairness this is way too minuscule an initiative. It pertains to a segment that is less than one per cent globally though there is no telling if the scope of the alliance will be extended in the coming years.

While Renault emerged the knight in shining armour for Nissan 17 years ago, it was now the turn of the latter to do something similar for Mitsubishi. There are some interesting synergies that the duo can work on in the ASEAN region as well as in engine and product development.

Interestingly, Mitsubishi had explored the idea of a global alliance with PSA Peugeot Citroen some years ago which seemed to suggest an encore of the successful Renault-Nissan marriage. However, the talks did not throw up anything substantial and, years later, it was a weaker Peugeot that needed Dongfeng Motor of China to infuse equity and get back on its feet.

Honda’s car business has been chugging along without any alliances and it is a moot point if the management will contemplate something in the future. There is really no compelling reason to do so especially when the boat is not rocking yet but these are especially challenging times for automakers.

It was the mega merger of Daimler and Chrysler that spurred the consolidation wave across the world even while the marriage collapsed like a pack of cards. VW has a dozen brands in its portfolio ranging from Audi, Lamborghini, Porsche and Bugatti to Skoda, Scania, MAN and Ducati.

Apart from Nissan, Renault has teamed up with Daimler while Fiat Chrysler Automobiles recently reached out to GM which was not interested. Chinese automakers also have lofty goals with Geely buying out Volvo Cars while others like SAIC and Dongfeng have strong roles in their alliances with GM and PSA respectively. The Japanese probably believe that they just cannot be silent spectators any longer.

Published on October 13, 2016

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