Rediff.com« Back to articlePrint this article

How Toyota, Suzuki plan to beat slowdown in auto industry

August 29, 2019 14:59 IST

While Toyota will acquire 4.94 per cent shares of Suzuki, worth $ 908 million, the latter will make a $ 454-million investment in the biggest automaker of Japan.
Premium products from the Maruti stable such as the Baleno, Ciaz and Vitara Brezza will be sold under the Toyota brand with small changes.

Strengthening their existing collaboration to develop futuristic technologies, Japanese automobile majors Toyota Motor Corp and Suzuki Motor Corp on Wednesday announced a “capital alliance” for equity investment into each other.

While Toyota will acquire 4.94 per cent shares of Suzuki, worth $ 908 million, the latter will make a $ 454-million investment in the biggest automaker of Japan.

 

The latest investment comes months after the two companies announced a cross-badging deal under which they would manufacture vehicles for each other in the Indian market.

Premium products from the Maruti stable such as the Baleno, Ciaz and Vitara Brezza will be sold under the Toyota brand with small changes.

In return, Maruti will get technical know-how, which will help the company develop hybrid and electric cars.

With the government giving impetus to cleaner fuel, the industry expects Maruti will have a significant advantage where it can develop such vehicles using Toyota’s research and development prowess.

Using Toyota’s know-how and facilities, Maruti is currently testing around 50 electric vehicle (EV) prototypes in the country.

“We are testing vehicles in different terrains and it will give us a good insight into what kind of EV will be suitable for the Indian market,” said Nikhil Vyas, head, corporate planning at Maruti Suzuki.

After the deal’s announcement on Wednesday, the stock price of Maruti Suzuki (MSIL), which contributes 34 per cent of the consolidated revenue of Suzuki, fell around 3 per cent.

Analysts are divided over near-term benefits to Maruti from this partnership.

“Through this crucial capital alliance, we believe MSIL has hedged its need for technology as the sector embraces for disruption through connected, autonomous, shared, electric, considering Toyota’s massive R&D capabilities and current technological know-how.

"We believe this to be an overall positive for MSIL over the medium- to long-term,” SBI Caps said in a note.

However, some feel that Toyota, currently at seventh position with less than 5 per cent market share, has an upper hand in this partnership.

According to them, while EV technology’s adoption for Maruti will take time, the risk of Toyota eating up from Maruti’s gain is higher.

“Toyota will be immensely benefitted from Maruti’s low-cost manufacturing and vast distribution platform in India,” said an industry executive.

According to industry estimates, Maruti has around 2,500 dealerships across India as compared to 275 of Toyota Kirloskar.

Through deepening partnership with Maruti, Toyota in India will be able to draw buyers who opt for a pricey Innova or Fortuner model but choose a rival brand for their second or third car, a segment dominated by companies such as Maruti Suzuki.

Toyota also wants to learn the art of selling small cars in India from Maruti and train its workers accordingly.

“We can clearly see the rationale behind the association for the Japanese companies and believe it could turn out to be a win-win for both.

"However, Maruti might need to take up the mythical role of ‘Atlas’ and do the heavy lifting to hold aloft this deal,” ICICI Securities said in a research note on April 16, explaining the partnership.

It added risks outweighed potential future technology benefit for Maruti.

A similar alliance that Suzuki tried to form with Volkswagen, under which the German automotive giant had purchased a 19.9 per cent stake in Suzuki to gain benefit in key developing markets such as India, failed.

Maruti chairman R C Bhargava refused to comment on the impact of the equity partnership.

Arindam Majumder in New Delhi
Source: source image