Toyota, Subaru Are Becoming Increasingly Entwined
April 08, 2008

By Peter Nunn

TOKYO — Japan is buzzing with news that Toyota plans to raise its stake in Fuji Heavy Industries, Subaru's parent company, from 8.7 percent up to around 17 percent.

The story was broken by the Nikkei, Japan's well-connected business newspaper, has since been picked up by other media, not denied by either Toyota or Subaru.

Indeed, a spokesman from one of the companies admitted privately "the Nikkei got a scoop." All of which seems to back up the Nikkei's claim that Toyota will pick up 64.25 million shares in FHI for around ¥30 billion (some $306 million).

Ever since Toyota became the leading shareholder in Fuji Heavy Industries in October 2005 in the wake of the company’s hasty divorce from General Motors, many in Japan believed it was simply a matter of time before Toyota upped its stake.

So why now? Because up to a point, both companies need each other.

Toyota claims to be short of production capacity and design talent as it continues on its drive to lift output past 10 million units and thus become the undisputed world No. 1

Subaru, for its part, is many times smaller and finding the harsh economic climate increasingly hard going. In fact, the Nikkei predicts for the 2007-08 business year just finished, Subaru will post its second successive double-digit decline in operating profits because of weak sales and rising R&D costs.

Thus, a ¥30 billion injection from Toyota for an extra 8.2 percent stake would help Subaru's balance sheet immensely.

On the face of it, Toyota, like GM before it, seems set on keeping its stake below 20 percent. Thus Subaru stays independent, and there's no plan, at least for now, for it to become a Toyota subsidiary.

Toyota already has a controlling 51.9 percent share in minicar expert Daihatsu, coupled with 50.1 percent shareholding in Hino, Japan's top commercial-vehicle maker. Toyota also has minor stakes in Isuzu (5.9 percent) and Yamaha (4.4 percent).

Subaru is different. Proud, quirky, small, engineering-led and different, Subaru also makes a series of premium high-tech all-wheel-drive vehicles that Toyota doesn't, and can't.

So Toyota respects the highbrow engineering, history and talent of Subaru and although the two companies have already started working together — Toyota building Camrys at Subaru's U.S. plant is just one example — the whole partnership is about to get far more involved.

Toyota and Subaru are already planning several new models together. These include a new B-segment compact that will become the next Toyota Passo/Daihatsu Sirion/Subaru Justy, for Japan and Europe and be positioned below the Toyota Yaris; and a controversial new rear-drive sports coupe with Subaru's 2.0-liter flat engine, which will be marketed and sold by Toyota (and perhaps Subaru, too).

Toyota will subcontract Subaru to build these new models at its main factory in Gunma, the Nikkei said, thus giving Subaru's underutilized plant a much-needed operational boost.

Going the other way, it's believed there are also discussions going on over the possibility of building Subarus at some of Toyota's plants, both domestic and overseas.

In the background to all this lies the fact that not even mega-rich Toyota is immune to the current economic climate. The soaring yen, record high oil prices, rocketing raw-material prices and softening U.S. sales are causing Toyota chiefs to think again.

If Toyota is to continue on its aggressive upward path, it now has to think outside the box, or so it's been reported in Japan. Hence the increased tie-up with Subaru, which goes against Toyota's traditional way of working: keeping as much as possible in-house.

Meantime, another paper, the Nikkan Kogyo Shimbun, reported it was Subaru that approached Toyota to buy the outstanding treasury stock shares as a means of further building up trust and cooperation, boosting the bottom line and also halting the slide in Fuji Heavy Industries' share price.

All in all, the way it's being reported in Japan, it's increasingly looking like a done deal although it seems nobody outside Toyota and Subaru knows exactly when it will happen.

Still, one thing is for sure. Step by step, Toyota and Subaru are becoming increasingly entwined and on paper at least, it looks like a move with plenty of upside for both companies.•



   

   
   

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