India could be at the heart of the latest realignment in the global automobile industry as Japanese car makers Toyota Motor Corp. and Suzuki Motor Corp. on Monday announced plans to “establish an implementation framework" for a business partnership in areas such as green vehicles, safety and information technologies and mutual supply of products and components.
Last October, the two companies said they were exploring a partnership, citing technological challenges facing automakers and the need to keep up with consolidation in the global auto industry.
The areas of collaboration agreed upon seem to have stemmed from the rapidly changing global regulatory environment that has also started to have an impact on India, which contributes 65% of Suzuki’s consolidated profit. Its local unit Maruti Suzuki India Ltd has a hefty 47% market share.
Suzuki may leverage the partnership to seek collaboration on electric and hybrid vehicles, apart from technology. For Toyota, the gains could be a bigger footprint in the lucrative Indian market, which is expected to be the second-largest passenger vehicle market by 2026 with an annual volume of 13.4 million units per year if the local economy grows at an annual pace of 7.5%, according to the Indian government.
In India, Toyota has a small but profitable presence with larger vehicles such as Innova and Fortuner driving profits. It would look to gain from Suzuki’s expertise in the small car segment. Localization of components, vendor and dealer networks and the understanding of the Indian market are some of Suzuki’s key strengths. Toyota, too, has announced it will introduce its small car brand, Daihatsu, in India.
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Osamu Suzuki, the 87-year-old chairman of Suzuki, said both companies are keen on a partnership.
“In response to Toyota’s display of enthusiasm, Suzuki is also intensively engaged in the discussions, and we now stand at the starting point for building a concrete cooperative relationship. I want to give this effort our fullest and to aim at producing results that will lead Toyota to conclude that it was the right thing for Toyota to have decided to work together with Suzuki," he said in a joint statement.
India has decided to leapfrog to Bharat Stage VI norms, the equivalent of Euro VI norms, in 2020 from BS IV currently. The government also wants to ensure that manufacturers offer safety features similar to those in cars in developed markets. All cars are expected to meet frontal and side impact crash standards apart from adding safety features such as dual airbags from 2019.
A partnership could help Suzuki on both fronts. In addition, “sharing hybrid technologies could be important", said Anil Sharma, principal analyst at research firm IHS Markit. “Suzuki has not really been as successful as Toyota... They may look to develop technologies jointly but use them separately. This will bring down development costs."
This is Suzuki’s second attempt to forge an alliance with a larger (and technologically more savvy) firm. The first, an equity sale to and partnership with Volkswagen AG, ended bitterly. In 2015, Suzuki said it would buy back the 19.9% stake it sold to Volkswagen AG after an international arbitration court ordered the German auto maker to sell its holding.