Toyota, Suzuki come closer in new Japanese wave

It has taken four months for Toyota and Suzuki to make known the second phase of their proposed partnership. The first announcement of their intent to come together was made in October. Earlier this week, the two said they had signed an agreement to explore the possibility of teaming up in the areas of safety, environment and information technologies.

There could be some interesting dynamics at play as this alliance’s target markets include India. Both Suzuki and Toyota have made it clear that they will stay individually competitive that means there could be some back-end synergies happening in sourcing components. Beyond this, the two will definitely look at common platforms, engines and so on but all this is not likely to happen before 2020.

As in the four-month lag between the two announcements, the next big thing could be news of an equity alliance, where the bonding will become more profound. If that happens, it will pretty much cement an interesting relationship between two important automotive brands in Japan. Toyota, of course, is the bigger of the two but does not have the kind of standing and formidable presence of Suzuki in India. And this market is poised to become the third largest car producer by the end of this decade, where Toyota desperately needs to increase its presence.

Suzuki is no stranger to global alliances and one of its most enduring was the one with General Motors, where the two were at one point in time seen as the ideal allies. The global automotive arena was a different place then with all the action happening in the US and Europe. By the turn of the century, GM acquired Daewoo and gradually shed its stake in Suzuki, by then it was in the driver’s seat at its Indian arm, Maruti Udyog.

Some years passed before Suzuki tried another global ally in the form of Volkswagen, where the relationship promised the moon but ended up being a nightmare. The partners were clearly not suited to each other and once compatibility become an issue, the only way out was to call it quits. Suzuki was relieved to go solo again but it was all too clear that beyond India, ASEAN and Japan, its presence was not so overwhelming. To that extent, an ally was welcome but who could this be?

For a while, speculation was rife within industry circles that an alliance with Fiat could be on the cards. After all, Suzuki was sourcing its diesel engines from the Italian automaker that became a bone of contention in the pact with VW. Fiat, however, was working on the merger with Chrysler while reaching out to GM too in more recent times.

When Suzuki and Toyota made their intention publicly to come together last October, it was remarkable in more ways than one. This was a time when it looked as if the Japanese auto industry was truly in consolidation mode. Nissan had thrown a lifeline to a beleaguered Mitsubishi, while old foes, Yamaha and Honda decided to team up in a niche area of 50cc scooters and is trying to explore options in electric mobility too.

The Yamaha chief, however, said in a recent interview that too much should not be read into what some perceived as a phase of consolidation in Japan. It was his view that such alliances were happening on a case-by-case basis and there was nothing more to it. In other words, Honda and Yamaha would not go beyond the scope of this limited partnership.

Yet, the fact that these new relationships between Japanese automakers is happening at a rapid pace seems more than a coincidence. In the case of Mitsubishi, of course, it had to weather the headwinds of a mileage scandal and needed help. This is when Nissan entered the picture as the knight in shining armor.

As for Honda and Yamaha, the two decided to collaborate because it made little sense spending money individually on a product category that is fast disappearing in Japan. To that extent, saving costs through an alliance made more sense though there is no telling if the two will take this relationship to the next level. After all, if synergies in other areas translate into lower costs, why not make the most of it?

Suzuki will gain with a stronger partner like Toyota but it will be interesting to see how this alliance evolves in the coming years. Perhaps, it will go the Renault-Nissan way that has shown how a partnership can work well even while keeping each one’s brand identities intact.

At one level, it just makes sense to collaborate given the rapid pace of changes happening in the automotive arena. Manufacturers are beginning to grapple with a host of new challenges arising from urbanisation, mobility options such as Uber (where vehicle ownership may no longer be a top priority), connected/autonomous cars and so on. On the way, there have been disruptors like Tesla, which have compelled automakers to reconsider their business models.

Adapting to a new environment means spending a lot more and in this background, collaboration is the best way forward. Perhaps, from the Japanese auto industry’s point of view, it is best that this be done with fellow homegrown brands. It will be interesting to see how the Toyota, Suzuki marriage pans out in the coming months.