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Toyota, Suzuki reaffirm intent to take partnership forward

Murali Gopalan | Updated on August 30, 2019

Coming together: File picture of Toyota’s Akio Toyoda (left) and Suzuki’s Osamu Suzuki at a press conference   -  Bloomberg

The equity deal announced this week is a clear signal that the alliance is here to stay

It has been an astonishing pace of events for Toyota and Suzuki over the last couple of years.

Since the time the two Japanese auto-makers made the first announcement of their intent to work together, the updates have been coming in quite frequently. When partners typically keep their cards close to their chests, both Toyota and Suzuki have clearly been the exception to the rule.

Be it details of product swaps, new model plans or markets planned for entry, everything has been put up on the news bulletin. The latest this week on the equity deal pretty much puts the seal on a marriage that is intended for keeps.

In the process, this partnership sends out a host of signals on the new dynamics emerging in the automobile space. Toyota is a global giant while Suzuki is the monarch of the Indian car market, which is on its way to becoming the third-largest worldwide. It is a well known fact that Toyota has little to show in terms of market share here except for a resounding success story like the Innova and, prior to that, the Qualis. The first phase of the partnership with Maruti Suzuki is already in place with the Baleno making its way to the Toyota stable as the re-engineered Glanza.

Going forward, there will be a lot more coming in terms of joint product development, initiatives on clean fuel options and the like. The Bharat Stage VI emissions era, which kicks in from April 2020, could create some serious disruptions as vehicles become more expensive thanks to substantial investments made in new technology.

In such an unpredictable scenario, partnerships just make more sense rather than going solo. Maruti Suzuki is a formidable player for sure but the following decade will see a host of legislative changes where manufacturers will need to react quickly. This is when a strong ally will help and this puts the Toyota-Suzuki alliance in greater perspective.

Partnerships make sense

Such marriages are happening across the world with car-makers constantly on the lookout for potential allies. It was only a few months ago when Fiat Chrysler Automobiles (FCA) offered a merger proposal to Renault, which was abruptly withdrawn in barely 10 days. Still, there is no telling when talks will resume since companies are wary of the new challenges ahead and would much rather have a strong partner to navigate the journey in tandem.

In the case of Toyota and Suzuki, there is clearly some kind of consolidation happening with Japan’s automotive ecosystem. Toyota already has an equity partnership with Mazda for North America while the competencies of its group company, Daihatsu, are being leveraged for the ASEAN region.

The partnership with Suzuki is clearly targeted for India and other emerging markets like South Africa and Latin America. This is where Toyota’s financial muscle and market intelligence will come in handy in the same way Suzuki’s standing in the Indian market will play a big role in the alliance.

Win-win situation?

If everything goes according to plan, it will be a win-win partnership and there is no reason why it should not be, considering that there is far easier cultural compatibility between two Japanese companies. This was not the case in Suzuki’s earlier foray with Volkswagen, which promised the moon at the time of its formation but just fell apart in no time.

Prior to this, Suzuki had a decades-long partnership with General Motors that went on smoothly. In fact, speculation was rife at one point that the American car-maker would even play an active role in the Indian arm, Maruti Udyog (as it was called then) once it was privatised.

At that point in time, the Government was the other partner and even while it eventually exited, GM followed a separate course by snapping up Daewoo Motor globally. It sold its stake in Suzuki globally which, by then, was in the driver’s seat at Maruti. The company grew from strength to strength in India and later got into an alliance with VW worldwide.

As in the case of Toyota, this was a cross-holding deal, which also promised plenty for India but the partners were clearly not comfortable with each other. The divorce was inevitable and Suzuki is clearly in a happier place now with Toyota. Going by the pace of progress thus far, it does look as if the script is working perfectly with the partners articulating their mutual respect for each other’s strengths and competencies.

Merger possible?

Will a merger follow in due course of time? Perhaps this will happen but the truth is that the Japanese see things a lot more differently. As an industry source puts it, for them it is all about the journey and not the destination, especially for a company like Toyota whose processes have become a global benchmark for excellence.

Getting back to the subject of consolidation in Japan, Toyota and Suzuki is clearly a step in that direction. Prior to this was the case of Nissan acquiring a controlling stake in Mitsubishi two years ago. The company has had a cross holding deal with Renault for two decades now but things have not been so great between the two in recent times.

This came to the fore during the FCA merger offer to Renault where Nissan was not part of the deal. This obviously created a fair bit of tension even while the French government went out of its way to ensure that Nissan’s rights as a partner needed to be respected.

Despite that, reports have been doing the rounds for a while now that it is only a matter of time before this strong global alliance, crafted carefully by former Chairman Carlos Ghosn, will come apart. Of course, it will not be easy by any stretch of imagination and the French government, which is also a stakeholder in Renault-Nissan, will be quick to douse a fire.

Yet, if talks do resume with FCA, then there is no telling what will happen in the near future. Nissan may persist on calling it quits and perhaps going the whole hog with Mitsubishi instead. A stronger Japanese auto-maker may then join the duo to ensure that there is a strong three-way partnership in place.

All speculation

For now, all this is in the realm of speculation but who would have thought that sworn enemies like Honda and Yamaha would actually come together even if it is for a small segment like 50 cc scooters in Japan. Going forward, the two may just deepen this partnership and work jointly on new challenges in the mobility arena like electrification and so on.

The truth also remains that a gigantic participant like China is keen on spreading its wings globally and will target companies that make for attractive acquisitions. This is where Japanese auto-makers would ideally like to hold their own and keep their strengths within their own umbrella.

After all, Geely has reported a huge success story with Volvo Cars and has also grabbed substantial sakes in Daimler AG and Volvo Trucks.

Great Wall Motors was apparently keen on acquiring the Jeep brand from FCA even though nothing came out of this eventually. Likewise, there are other formidable brands like Changan and SAIC, which are ambitious and aggressive in their global plans.

For now, Toyota and Suzuki have made their intent clear to work together through this equity arrangement. There is a certain solidity about this alliance, which augurs well for the future. How people within the two companies cope in this transition is the greater challenge. This will be the acid test for markets like India too where teams from both Maruti and Toyota will now have to think completely different going forward.

Published on August 30, 2019

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