Toyota Considers Buying Out Daihatsu

Daihatsu's share price soared 16 per cent due to the surge in buy orders and despite both companies denying the existence of a tie-up, Suzuki's shares jumped by 11 per cent and Toyota's by 3.8 per cent. Taking full control of Daihatsu could help Toyota cut the purchase costs for the small car brand whereas a potential deal struck with Suzuki could potentially help Toyota gain ground in India where Suzuki, along with local partner Maruti, controls approximately 50 per cent of the passenger car market.

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Toyota already owns 51.2 per cent of Daihatsu and is keen on taking full control of the low cost brand to leverage it better. In a statement, Toyota said," 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."

The company witnessed a poor 2015 which resulted in a 13.3 per cent drop, and as a result, was the weakest performing Toyota subsidiary which also includes Lexus and Japanese truckmaker Hino Motors. A Reuters report states that Daihatsu's dip in sales resulted in the Toyota Group's overall sales dropping by 0.8 per cent to 10.15 million units although the Japanese carmaker did retain its title of being the world's largest car manufacturer as closest rival Volkswagen achieved a year-end sales figure of 9.93 million units.

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Reuters notes that a report from the Nikkei Business Daily stated that Toyota and Suzuki were in discussions to form a partnership which would help both companies from many angles including the possibility of cross-shareholdings as both look to capitalise on the growing existing and ever-growing demand for compact cars in emerging economies like India.

Analysts have observed that Toyota's intent to buy out Daihatsu could in fact result in the company mounting a counter to Suzuki's small car dominance rather than striking a deal with the rival brand. Daihatsu, like Suzuki, is a small and affordable car specialist that is known for its 660cc Kei car offerings in Japan as well as other compact vehicles. "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. 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," said CLSA senior research analyst Christopher Richter.

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Despite this observation, others have suggested that a potential Toyota-Suzuki partnership could in fact greatly benefit both gargantuan companies. Maruti Suzuki controls a vast network of manufacturing facilities and distribution centres across the country, a fact which would greatly benefit Toyota's outreach in India. Analysts from JPMorgan stated," Suzuki would meanwhile be getting a stable shareholder n Toyota as well as access to Toyota's HEV/FCV and other next-generation environmental technologies geared toward future electrification."

Suzuki is expected to tread carefully with any future partner ventures as their previously struck capital alliance with Volkswagen AG in 2010 resulted in soured relations and ended in the unwinding of their cross-shareholdings, reports Reuters.