Toyota: Tighter with Subaru, Daihatsu

The Japanese automaker will raise its stake in Subaru parent Fuji Heavy Industries and produce a new rear-wheel-drive sports car

When Toyota Motor (TM) bought into Fuji Heavy Industries, owner of the Subaru brand, in October, 2005 (, 10/5/05), industry watchers speculated whether the Japanese auto giant could do better with the partnership than General Motors (GM). At the time, GM ended a six-year relationship with Fuji Heavy, selling its 20% stake for $740 million.

Developments on Apr. 10 suggest that Toyota is right on track. Speaking at a Tokyo press conference, Toyota President Katsuaki Watanabe, flanked by counterparts from Fuji Heavy and Daihatsu Motor, Toyota's minicar maker, announced closer ties between the three companies.

Arguably most exciting for auto enthusiasts is confirmation that Toyota and Subaru are to produce a new, rear-wheel-drive sports car. The new compact sports car, which will be marketed by both companies, will be launched in 2011 and is to be powered by Subaru's horizontally opposed, or boxer, engines. Production will take place at a new factory in Gunma, Japan, with Toyota consigning production to Fuji Heavy. "We don't have a sports car in our product lineup," Watanabe told reporters. "A rear-wheel-drive sports car has a lot to offer."

Fuji to Eventually End Mini-Car Production

Watanabe and Fuji Heavy Chief Executive Ikuo Mori said they had driven an early test version of the car, although they declined to offer much detail beyond promising a fast, exciting drive. "I think we're going to come up with an outstanding car," Mori told reporters. Watanabe added that pricing would be "at a range which is not prohibitively high."

In return for Fuji Heavy building the sports car, Toyota will begin supplying Fuji Heavy with compact cars to sell under the Subaru brand in 2010. Daihatsu, 51% owned by Toyota, will begin supplying 660cc minicars to Fuji Heavy for sale in Japan from 2009 and a Subaru version of the Daihatsu Coo, a compact car, later this year. Eventually, Fuji Heavy will pull out of building its own minicars.

Toyota will also raise its stake in Fuji Heavy to 16.5%, subject to approval from Japan's regulatory authorities, at a cost of $300 million. Mori said the money would go toward building the new Gunma plant.

Filling the Sports Car Gap

While further details are scant, the moves look positive for all involved. For Toyota, the deal will provide a much needed sports model. That's something that has been lacking since it ended production of the Celica, Supra, and MR-2 sports models. The MR2 two-seater, known as the MR-S in Japan, was phased out in the U.S. in 2004, while the last Toyota Celica (, 11/29/06) rolled off the production line in Japan in April, 2007.

What's more, by handing over production to Fuji Heavy, Toyota can develop the new model with less strain on its engineers. That's particularly important given recent concerns over quality at Toyota after its high-octane growth (BusinessWeek, 1/22/07) earlier this decade.

On Apr. 9, Toyota announced two recalls in one day. The automaker said it is recalling more than 500,000 Corolla and Matrix vehicles with defective power windows sold in the U.S. from 2003 to 2004. The company on Apr. 9 also announced it will recall over 630,000 minivans sold in Japan because of faults in their fuel tanks and computers.

Access to Toyota's Financial Muscle Helps

Toyota can also cozy up to Fuji Heavy with confidence after a successful start to their relationship. At the press conference, Watanabe went to great pains to praise Fuji Heavy unit Subaru Indiana Automotive in Lafayette, Ind., which is producing 100,000 Camrys a year for Toyota. Fuji Heavy and Toyota are also working on hybrid technologies.

For its part, Fuji Heavy can use the new capital to build the plant and, by relying on Daihatsu for minicar production, can focus on the kind of vehicles it makes best. That includes cars like the Impreza compact, Legacy sedan, and Forester station wagon. It also can't hurt to have access to Toyota's tech know-how and financial muscle. Daihatsu benefits from increased economies of scale in the narrow-margin minicar business.

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