Toyota and Suzuki: Starting discussions for a business alliance

Partnership in environmental friendliness, safety, and information technology

2016/11/04

Summary

President Toyoda and Chairman Suzuki
President Toyoda and Chairman Suzuki at the press conference (photo: Toyota)

  Akio Toyoda, President of Toyota Motor Corporation, and Osamu Suzuki, Chairman of Suzuki Motor Corporation, held a joint press conference on October 12 2016 at a conference room in Toyota's Tokyo headquarters to announce that the two companies have "agreed to begin discussions towards establishing a cooperative relationship".

  Both OEMs will strengthen their cooperation in the fields of environmental friendliness, safety, and information technology. The backdrop for this agreement is that initiatives to develop cutting edge technology such as next-generation environmentally friendly vehicles, autonomous driving, and connectivity are advancing at unprecedented speeds. Moreover, there is an increasing need to coordinate with other companies to establish new rules.

  The automakers explained their respective issues, with Toyota stating it has fallen behind in comparison to European and American OEMS in making alliances and developing standards, and Suzuki noting that although it has consistently refined its techniques in developing automobiles with high price competitiveness, it has problems in developing advanced and future technology, and sees this as a danger.

  Specific fields in which the two companies will cooperate, as well as capital alliances are yet to be discussed. The purpose of this announcement was to inform stakeholders and the industry that the two companies are considering an alliance. Being that both automakers were established relatively in close proximity to one another and the founding families are on good terms, an alliance between the two OEMs has been rumored for a long time.

  In August 2016, Toyota took full ownership of Daihatsu and is also the largest shareholder in Fuji Heavy Industries (FHI, the maker of Subaru vehicles) with a 16.5% stake. The OEM also announced an alliance with Mazda in May 2015. As a result of this, Japanese OEMs are now split into three camps: Toyota Group, Suzuki, and FHI; Nissan and Mitsubishi; and Honda.

 

トヨタとスズキの提携�
係

 

Related Reports:

Nissan takes 34% controlling stake in Mitsubishi Motors (Aug. 2016)
Toyota to make Daihatsu a 100% subsidiary; entrusts A-segment development (Mar. 2016)



Aims underlying the business partnership: Creating allies and developing advanced technology

Toyota's intent:
"Creating allies"
  "Toyota is not very good at creating alliances. Traditionally, Toyota has been fixated on the need to be able to cover all of our own bases. However, as the surrounding environment is changing drastically, we need to have capability to respond to changes in order to survive. This is exactly the challenge that Toyota has to overcome now."
  We at Toyota are now making efforts for the future, such as through our initiatives which help to promote the creation of a hydrogen society, as well as R&D in the artificial intelligence and robotics fields. In these areas, we are collaborating with other companies to work together on R&D. I believe that we have to go forward with understanding of the importance of the need to create partnerships and the establishment of standardizations.
  "We would like to always keep our doors open for new partnership opportunities, which will contribute to the making of ever-better cars as well as to the development of the automotive industry."
  "Daihatsu will take on a central role in our compact car business for emerging markets. Based on this understanding, we will proceed with discussions about partnership opportunities with Suzuki, while taking applicable regulations into account."
Suzuki's intent:
"Developing advanced technology"
  "We remain determined to manage Suzuki as an independent corporation."
  "Suzuki's current business focuses on mini-vehicles in Japan, and in India in terms of operations outside of Japan. Even in such countries, we have understood that there will be uncertainty in the future if we only continue to simply refine our traditional automobile technologies which we have been working on thus far."

Source: Toyota and Suzuki's press release 2016/10/12

 

Relationship with Daihatsu

Toyota Group's market share of the mini-vehicle market in Japan, including Suzuki and Daihatsu, exceeds 60%. President Toyoda commented, "As we proceed with the considerations for a partnership, we will also discuss while bearing in mind regulations regarding the antimonopoly law. As for the details, Toyota and Daihatsu will compete fairly and freely, and we will consult with the Japan Fair Trade Commission if necessary."

 

Cooperation in India business

President Toyoda has stated, "I respect Suzuki for being pioneers. It's disrespectful of us to say we want to 'utilize Suzuki' in India. We want to learn their pioneer spirit."


Toyota's partnerships: Daihatsu, Fuji Heavy Industries, Mazda, BMW, and PSA

Daihatsu: Co-establishment of a "small car company for emerging countries"

  In October 2016, Toyota announced the division of roles between it and its wholly owned subsidiary Daihatsu. In order to strengthen its small car business in emerging countries, both OEMs will establish a "small car company for emerging countries" in January 2017. The company will handle work on small cars from planning to production preparations (A and B segment vehicles) for emerging countries excluding China, and develop competitive products based on Daihatsu's high-quality, low-cost methods.

  Toyota's "Toyota Compact Car Company" will handle small cars for developed countries, thereby separating the two brands.

Division of roles between Toyota and Daihatsu

Daihatsu * Fundamentally, Daihatsu will handle the small car development, procurement, and production preparations for emerging countries.
* Expanded utilization of Daihatsu's new architecture "DNGA" architecture
Toyota Toyota will provide support through its expertise and management resources.
Product planning, business planning Toyota and Daihatsu will formulate and share plans together.
Production Effective utilization of both OEMs' existing facilities.

 

Fuji Heavy Industries: Advancing joint development of a small sports car, receiving OEM supply of mini-vehicles

  Toyota is the largest shareholder in FHI with a 16.48% stake, and is jointly advancing the following businesses.

Mini-vehicles FHI has discontinued production of mini-vehicles in 2012, and is now receiving OEM supply from the Toyota Group company Daihatsu.
Small sports cars The automakers co-developed the Toyota 86/Subaru BRZ, and have produced the vehicles at FHI plants since 2012.
Small cars FHI was supplied with Toyota Ractis units, which were sold as the Subaru Trezia in Japan from 2011 to June 2016. It is reported that the small cars developed by Daihatsu will be sold under the Toyota, Daihatsu, and Subaru brands from the fall of 2016.
Production of the Camry in the U.S. (until May 2016) The Toyota Camry was produced on a consignment basis at Fuji Heavy Industries' U.S. plant from 2007, but discontinued in May 2016. Since July 2016, the production line has been used to produce the Subaru Outback. This is part of Toyota's plans to reorganize its North American business and Fuji Heavy Industries' plans to strengthen its production capacity in North America.
Hybrid technology Fuji Heavy Industries has received technical support from Toyota for developing HV/PHVs.

 

Mazda: business partnership signed in May 2015, details under consideration

  In May 2015, Toyota and Mazda signed a memorandum of understanding to "further increase the appeal of automobiles" and establish a cooperative relationship through means like utilizing management resources and support for products and technology. Currently, the details of the business alliance are being discussed in a review committee both OEMs participate in, but nothing has been announced as of October 2016.
  Previously, Toyota provided Mazda with a license for hybrid technology, and Mazda produced the Yaris iA based on the Demio (Mazda2) at its plant in Mexico from 2015, providing the vehicles to Toyota on an OEM basis.

(Note) On July 11, 2016, Isuzu agreed to provide its next-generation pickup truck that is currently undergoing development to Mazda on an OEM basis. Mazda produces the DT50 pickup truck it co-developed with Ford in Thailand, but with this arrangement with Isuzu, it will be able to focus its production capacity on passenger vehicles. Moreover, on July 22, 2016, Isuzu announced it has cancelled the co-development of a next-generation pickup truck with GM, and will develop alone.

 

BMW: joint development of a small sports car, advancing joint research on next-generation environmental technology

  BMW group and Toyota signed a cooperative agreement in January 2013. The two OEMs are collaborating in fields such as fuel cell systems, sports cars, and weight reduction; and are also jointly researching next-generation lithium-ion batteries and lithium-air battery technology.

Fuel Cell system BMW and Toyota are cooperating to co-develop a fuel cell stack system and fundamental systems for fuel cell vehicles such as hydrogen tanks, motors, and batteries, as well as to develop hydrogen infrastructure and formulate specifications and standards by 2020.
Toyota's fuel-cell stack is used in BMW's FCV prototype (revealed in 2015: based on the 5 Series GT).
Sports cars Both OEMs are planning to share a platform for a mid-size sports car. The vehicles will be successors to the Toyota Supra and BMW Z4, and are scheduled for release in 2018.
Weight reduction technology The two OEMs will co-develop lightweight body structure technology utilizing advanced materials such as reinforced plastics. The results will be incorporated into the sports car platform mentioned above, as well as into vehicles from other companies.
Joint research of next-generation lithium-ion battery technology The automakers will study materials for positive and negative electrodes and electrolyte materials to improve next-generation lithium-ion battery performance.
Post-lithium-ion battery technology The OEMs will conduct joint research on lithium-air batteries, which greatly surpass current lithium batteries in energy density and consumption performance.
Joint investment in autonomous driving technology venture In October 2016, Toyota, BMW, and the insurance company Allianz invested in the American automobile technology venture Nauto through their respective subsidiaries (amounts undisclosed). Nauto was founded in 2015, and has produced a system where a cloud AI analyzes footage of drivers and their surrounding environments filmed by a small camera installed on vehicle windshields. The three companies signed a license agreement with Nauto, and will use its data and system.

 

PSA

Joint development and production of small passenger vehicles Toyota and PSA have been producing A segment cars at the plant operated by the companies' 50-50 joint venture in the Czech Republic, "Toyota Peugeot Citroen Automobile Czech," since 2005.Automobiles currently produced at the plant include the Toyota Aygo, Peugeot 108, and Citroen C1.
Joint development of small commercial vehicles Moreover, both OEMs have jointly developed small commercial vehicles, and in 2016, released the Toyota ProAce, Peugeot Traveller, and Citroen Spacetourer. Production takes place at PSA's plants. Since 2013, the previous generation Toyota ProAce was provided to PSA on an OEM basis.


Toyota and Suzuki's market share in major Asian markets

Passenger vehicles in Japan (excluding mini-vehicles)
Market size: Approx. 2.75 million vehicles
Mini-cars in Japan
Market size: Approx. 1.3 million vehicles
Passenger vehicles in China
Market size: Approx. 24 million vehicles
Passenger vehicles in Japan Mini-vehicles in Japan Passenger vehicles in China
* The Toyota Group has captured roughly half the market with models including the Prius. Suzuki is now focusing on small passenger vehicles. * Toyota Group member Daihatsu and Suzuki have long been rivals for the top market share in the mini-vehicle market. In the new alliance, managing the relationship between Suzuki and Daihatsu may become a major point of contention. * In China, the world's largest market, neither OEM plays a major role. While Suzuki had a 2.1% market share in 2011, it has now dropped to less than 1/3 of that figure.

Light vehicles in Thailand
Market size: Under 800,000 vehicles

Light vehicles in Indonesia
Market size: Under 1 million vehicles

Passenger cars in India
Market size: Approx. 3 million vehicles
Light vehicles in Thailand Light vehicles in Indonesia Passenger cars in India
* Toyota also leads the market in Thailand, but its market share has been in a downward trend since 2015. The new Hilux pickup truck is not selling well. * Toyota/Daihatsu has more than half of the market share, with an MPV that is popular in the country accounting for a large part. Suzuki was second in market share until 2014, but is currently third after Honda. * Suzuki has nearly half the market share, and occupies a dominant position. Toyota has secured itself a position in the market with its upper-class models, but struggles in the low-cost and small vehicle market, where there is significant demand.

Source: MarkLines Data Center
(Note): Market shares in Thailand and Indonesia are totals from January to August 2016. For other regions, market shares are the totals from January to September 2016. "Market size" refers to sales expectations for 2016 in each market (MarkLines estimates).



(Source) Toyota and Suzuki FY 2016 plans

Unit sales: FY 2016 plan

(Thousand vehicles)

Toyota Suzuki
Japan Mini-vehicles - 550
Registered vehicles - 100
Total 2,240 650
Overseas North America 2,880 -
Europe 950 232
Asia 1,470 1,888
Other 1,360 186
Total 6,660 2,306
Total 8,900
(10,150: Note)
2,956

Source: Toyota and Suzuki's FY2017 Q1 financial reports
(Note) Vehicle retail sales in China including joint venture sales and non-consolidated companies.

 

FY 2016 earnings forecast

(Billion JPY)

Toyota Suzuki
Sales figures 26,000 3,100
(Japan) - 1,030
(Overseas) - 2,070
Operating income 1,600 180
Operating margin 6.2% 5.8%
Net income 1,450 93
Capital investment 1,340 220
Research and development costs 1,070 140
Assumed exchange rate
(USD 1)
JPY 102 JPY 105

Source: Toyota and Suzuki's FY2017 Q1 financial reports

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Keywords
Toyota, Suzuki, Partnership

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