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Competition over new technologies across industries led to Toyota-Suzuki capital tie-up

The recent announcement of a capital tie-up between Toyota Motor Corp. and Suzuki Motor Corp. comes against a backdrop of a sense of crisis among the two companies amid intensifying competition in self-driving technology and other next-generation technologies across industries.

The move's success will be measured by whether the tie-up can create a synergistic effect in new fields as the environment surrounding operations changes dramatically.

In a joint statement released Aug. 28, the two car manufacturers' concerns were made clear. It stated that "the automobile sector is currently experiencing a turning point unprecedented in both scope and scale, not only because of enhanced environmental regulations, but also from new entries from distinct industries and diversified mobility businesses."

The revolutionary wave rippling across the car industry is called C.A.S.E., in which "C" stands for connectivity, "A" stands for autonomous, "S" stands for shared, and "E" stands for electrification.

In May, Toyota President Akio Toyoda told a press conference, "(C.A.S.E. is) changing the very concept of the automobile. It's possible that the business model we've had thus far will be destroyed." Because of this, Toyota decided that "making allies" would be key going forward, and accelerated its efforts to collaborate with other car makers. By deepening relationships from business alliances to capital tie-ups, it would make it easier for both parties to produce better results when aiming for long-term relationship-building and promotion, according to a Toyota PR representative.

As a result, economies of scale come into play more easily in the development and production of automobiles. Toyota's global unit sales, when combined with Suzuki's, exceed 16 million units, the largest figure achieved by a single group in the world. There have been concerns that Toyota, whose subsidiary Daihatsu Motor Co. specializes primarily in compact vehicles, could create competition within its own camp if it cultivated a close relationship with Suzuki, which also has a wide range of compact cars. It appears, however, that both companies decided that the benefits outweighed any possible disadvantages.

What both Toyota and Suzuki have pointed to as one of the main purposes of the capital alliance is self-driving technology. The technology does not stop at safe self-driving functions such as self-braking, but comprises the core of self-driving delivery services and other next-generation, Mobility as a Service (MaaS) technology around which corporate alliances and competition are accelerating at breakneck speed. It's a promising market; there are estimates that by the year 2030, the market for MaaS will expand to 6 trillion yen domestically, and to 150 trillion yen in Europe, North America and China combined.

However, Waymo, Google's self-driving technology development company, and GM already have a leg up in this field. Thus Toyota jointly invested with SoftBank Corp. to establish Monet Technologies, an on-demand mobility service company, with Honda and Hino also contributing capital. In June, Suzuki and Mazda also decided to invest, and the Japanese bloc is hoping to catch up to its competitors across the Pacific.

For a mid-level carmaker like Suzuki, developing next-generation technology such as self-driving technology and electric vehicles (EVs) on its own is full of challenges, both in terms of technology and capital. Therefore it was inevitable that Suzuki accept investment from Toyota, with which it already had a business alliance, and further their cooperation.

In the past, Suzuki had strengthened its collaboration with foreign car manufacturers. In 1981, it entered into a capital and business alliance with GM, with Suzuki seeking technological advice from GM as a loyal disciple would. The relationship was a smooth one until GM's management was hit with hard times, and the alliance was dissolved in 2008.

Hard-pressed to find a new partner, Suzuki announced a capital tie-up with German carmaker Volkswagen the following year. However, Suzuki's relationship with Volkswagen did not go as swimmingly as its relationship with GM had. Suzuki made clear its dissatisfaction with VW's "insufficient" provision of technology, which exacerbated their already tense relationship. In 2015, the alliance was dissolved.

This was when Toyota, whose founding family had been on amicable terms with the founding family of Suzuki, began to strengthen its ties with the smaller car company. Following their alliance over environmental and safety technology, Suzuki was provided with Toyota's hybrid vehicle system. The two corporations expanded their collaboration, including through the development of electric vehicles in the Indian market, considered an important field by Suzuki. Such cooperation led to Suzuki selling 3.33 million four-wheelers in 2018 worldwide -- the best number for the company on record.

Yet, it was still a heavy burden on Suzuki to continue raising a research and development budget the way it had thus far. Research and development spending for the business year ending in March 2019 had risen by 10% compared to the previous year to 158.1 billion yen. The repercussions included a drop in consolidated operating profit. Spending was expected to rise going forward, which made it difficult for Suzuki to continue competing in the development of next-generation technologies.

Meanwhile, Toyota's research and development spending for the fiscal year ending in March 2019 was approximately 1.049 trillion yen, which is more than six times that of Suzuki's. In other countries, not just car manufacturers, but major IT companies like Google are having a go at the self-driving technology competition, pumping massive amounts of research and development funds into their work.

Suzuki Chairman Osamu Suzuki, known for his charisma, will be turning 90 next year. The laying down of a rock-solid management setup is of great importance, and with the capital alliance with Toyota, it could be said that a certain level of stability has been secured.

"The automobile industry enters a phase of major changes once every century, and we no longer live in an era in which we can survive building good products at low prices," said Takaki Nakanishi, head of Nakanishi Research Institute Co. "Suzuki is aiming for digitalization and electrification, and for Toyota, too, having an alliance with Suzuki, which has a strong market in India, is of significance."

(Japanese original by Tsuyoshi Kosaka, Business News Department; and Masashi Taguchi, Nagoya News Center)

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