Japanese automakers Toyota and Suzuki said Wednesday that they are exploring a "business partnership," with Toyota taking the unusual step of acknowledging that it may be trailing its competitors on cross-industry ties.
The companies said they had agreed "to start exploring ideas" for a business deal, which could involve collaboration on research and development, safety engineering or information technology.
To be sure, a key catalyst for the deal is a need by Suzuki, as the much smaller automaker, to get some help in navigating the costly road to meeting automotive regulatory requirements around the world. The company's rocky relationship with German automaker
Suzuki's CEO also exited the company earlier this year after the company admitted to having used unapproved methods to test its vehicles for gas mileage, engulfing the 107-year-old company in an emissions scandal.
But the potential tie-up is not just for Suzuki's benefit. Toyota's admitted that "it may be behind competitors in North America and Europe when it comes to the establishment of standardizations and partnership with other companies," suggesting that the world's largest automaker may be poised for change.
IHS Markit managing director James Chao said Toyota may want to tap Suzuki's expertise for low-cost manufacturing aimed at emerging markets such as India.
"These are markets where small cars, like the ones made by Suzuki, dominate," he said in a note. "For Suzuki, the capital needed to continue to be globally competitive may be reaching levels which may exceed their resources. At the volumes that Suzuki produces, it’s tough to stay competitive given the ever tightening regulations around the world, not to mention rising consumer demands for new technologies and features."
It's not clear whether a technological or manufacturing partnership between the two companies could pave the way for Toyota to acquire Suzuki outright or make an investment. But many in the industry believe consolidation is inevitable as manufacturers scramble to bolster fuel economy performance and meet emissions standards.
Toyota last year struck an engineering partnership with rival Japanese automaker Mazda and a technology deal with American tech giant Microsoft. Toyota also has deals with BMW and Subaru on certain products.
“As the environment which surrounds the automobile industry has been changing drastically, we need to have the ability to respond to changes in order to survive," Toyota President
"In addition to the R&D which each company is working on individually, it is very important now to have partners who share the same goal and passion. We would like to always keep our doors open for new partnership opportunities, which will contribute to the making of ever-better cars as well as to the development of the automotive industry.”
Suzuki, meanwhile, "is increasingly feeling a sense of uncertainty," the companies said in a statement.
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