Two of Japan’s largest automakers, Toyota and Suzuki, announced on Wednesday that they are considering a partnership that would give Toyota access to India's growing market and help Suzuki keep pace with the swiftly changing auto industry.
As the auto industry consolidates and innovates, experts say, such partnerships are necessary to keep some companies alive.
"The technology race in the auto industry has been escalating at a pace we've never seen before," Toyota President Akio Toyoda told reporters, adding, "In a situation like this, there are limits to what any one company can do on their own ... partnerships are becoming increasingly important."
The advent of self-driving cars and intelligent vehicles is a burden on many companies, which cannot shoulder the rising costs of research and development alone.
Suzuki, for example, holds nearly half of the auto market share in India due to its production of low-cost vehicles, but is struggling to keep pace with the rest of the industry.
A recent partnership between Suzuki and Germany’s Volkswagen failed after the German company accused Suzuki of violating the terms of their agreement. Suzuki had its own complaints about Volkswagen’s treatment of their partnership, claiming that VW failed to share promised technology, among other things.
In return for access to Suzuki’s Indian market, Toyota can assist the smaller company with research and development, particularly in regards to research on electric cars and automated systems. Currently, Toyota is predicted to outspend Suzuki seven to one on research and development this year.
The larger Japanese automaker has invested millions in self-driving cars, spending $1 billion this year alone on the creation of a Toyota Research Institute with offices in tech and auto hubs across the United States.
For its part, Suzuki has established access to markets in many developing countries (such as India) due to its focus on smaller, cheaper cars.
Currently, Toyota and Suzuki are the first and fourth largest automakers in Japan, with Nissan and Hyundai far outclassing Suzuki. And Toyota is only growing.
Although the need to invest in research and development is expanding across the industry, Japanese automakers are especially feeling the pinch.
“To have one or two carmakers in a country is not only natural, but also helpful to their competitiveness,” analyst Takaki Nakanishi told Bloomberg. “Japan has just too many and the resources have been too spread out. It’s a natural trend to consolidate and reduce some of the wasted resources.”
Toyota recently acquired Daihatsu Motor Company, a mini-car maker, in January, and increased its ownership stake in Subaru’s parent company in 2008. Now, Japan’s largest automaker looks to be strengthening financial ties to yet another Japanese company.
While it is unclear whether or not the two automakers will agree to a formal deal, the fact that they were willing to announce it is unusual. Toyota President Toyoda acknowledged that his company's reputation as a lone wolf can make partnerships difficult, but stated that cooperation within the industry is more important than ever.
“Toyota is not really good at creating alliances,” he said. But, “As the surrounding environment is changing drastically, we need to have capability to respond to changes in order to survive.”