Toyota considers Daihatsu buyout, denies Suzuki tie-up talks

TOKYO (Reuters) — Toyota Motor Corp said it was considering buying out the rest of minivehicle maker Daihatsu Motor Co, a $3.2 billion deal at current market prices, but denied a report that it was in partnership talks with Daihatsu rival Suzuki Motor Corp.

Full control of Daihatsu could help Toyota leverage the lower-cost brand better and cut procurement costs for Daihatsu, while capital ties with Suzuki would help Toyota to make inroads into India where Suzuki commands around half the passenger-car market.

“We are constantly considering a number of possibilities relating to Daihatsu, such as partnerships or business restructuring, including making the company a fully owned subsidiary,” Toyota said in a statement, but added that no decisions had been made.

Toyota owns 51.2 percent of Daihatsu, which like Suzuki, specializes in 660cc minivehicles, a segment particular to Japan, as well as compact cars.

The Nikkei business daily said that Toyota and Suzuki were discussing ties from a variety of angles, including the possibility of cross-shareholdings as they look to take capitalize on demand for compact cars in India and other emerging economies.

Risks and benefits

Some analysts noted that greater control of Daihatsu could be at odds with potential cooperation with Suzuki given that the two minivehicle makers are fierce competitors for the same customers.

“I can easily see the Daihatsu brand used in the same way that VW uses Skoda or Renault uses Dacia or Nissan uses Datsun as a low-cost, sub-premium brand to the core brand,” CLSA senior research analyst Christopher Richter said. “That could be a very effective weapon against Suzuki in places like India … if I were Suzuki that would sound like a risk to doing business with Toyota.”

Still, others noted that a potential Toyota-Suzuki partnership could benefit both automakers.

Suzuki, through its control of Maruti Suzuki India, has a vast distribution network in India that Toyota could greatly benefit from.

“Suzuki would meanwhile be getting a stable shareholder in Toyota as well as access to Toyota’s HEV/FCV and other next-generation environmental technologies geared toward future vehicle electrification,” JPMorgan analysts said in a note.

Suzuki is expected, however, to tread carefully with any new tie-ups. It formed a capital alliance with Volkswagen Group in early 2010 but relations soon soured, leading to a years-long dispute in an arbitration court that ended last year with the unwinding of their cross-shareholdings.

Shares in Daihatsu soared 16 percent today in Tokyo after being overwhelmed by buy orders for most of the day. Shares in Suzuki jumped 11 percent despite denials from both Toyota and Suzuki. Toyota rose 3.8 percent.

Weakest link

Last year, Daihatsu was the weakest link in the Toyota group, which also includes the Toyota and Lexus brands and truck maker Hino Motors.

Global sales for Daihatsu slid 13.3 percent in 2015, data released today showed. That pushed total Toyota group sales 0.8 percent lower to 10.15 million, although the group retained the title of the world’s biggest automaker, beating Volkswagen’s sales of 9.93 million.

Daihatsu has been Japan’s top seller of mini vehicles for the last nine fiscal years, controlling about 31 percent of the market in the first half of the annual period ending in March.

Daihatsu also has a commanding position in Southeast Asian markets

Daihatsu started making Toyota-branded minicars in 2011 and also builds vehicles for its parent in Indonesia. The company also was the top-selling automaker in Malaysia for nine straight years through 2014.

Daihatsu traces its beginnings to March 1907, when two academics and a group of businessmen set up a company in Osaka, Japan’s second-largest city, to produce internal combustion engines. The company changed its name to Daihatsu Motor in December 1951.

Toyota first tied up with Daihatsu in 1967 and has owned its majority stake since 1998.

Bloomberg contributed to this report

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