JANUARY 17, 2007
Autos
By Ian Rowley
Toyota-Ford: No Merger, Lots of Options
Alternatives include rebadging the Prius, co-producing cars in emerging markets, or assembling Toyotas at Ford's U.S. factories
Reports that Ford (F) Chief Executive Officer Alan Mulally and Toyota (TM) Chairman and former President Fujio Cho met in late December led to a raft of headlines over a possible Toyota-Ford tie-up (see BusinessWeek.com, 12/27/06, "And Now: Ford and Toyota")—only to have both companies play down the meeting. Not unreasonably, officials said a meeting between rivals, particularly with Mulally being new in the job, was nothing out of the ordinary. "We meet regularly with other automakers on a variety of topics of mutual interest," said Ford in a statement. Others noted that Toyota and Ford tried to form partnerships five times between the 1930s and 2000, but without anything of substance ever materializing.
Following an interview with Toyota CEO Katsuaki Watanabe on Jan. 17 in the Nihon Keizai, Japan's leading business daily, you can expect more of the same. In a wide-ranging interview, Watanabe offered little new but admitted he was happy to talk with Ford on possible technology tie-ins if the struggling U.S. automaker so wishes.
For all that, Watanabe doesn't sound especially enthusiastic. Asked if Toyota plans to build on the two firms' current hybrid relationships, Watanabe said any new tie-ins would likely center on technological development but Toyota hasn't received specific requests and the parties haven't started talks. At present, Toyota provides components for gasoline-electric hybrid vehicles to Ford through group firms, such as Aisin Seiki.
Thinking About Synergies? Watanabe was equally lukewarm about the prospects of extending the two firms' relationship to areas beyond environmental technologies. While ruling nothing out, he said it "would depend on the substance of the proposal" and that the possibility "is not zero." Not the words of someone chomping at the bit to do a deal.
Still, Toyota watchers say Watanabe could be playing his cards close to the vest. Koji Endo, an auto analyst at CSFB in Tokyo, says he wouldn't be surprised if the two firms were already thinking seriously about synergies. "My guess is that they started to talk about what they can do together rather than what they're aiming at," Endo says. He doubts Toyota would take an equity stake in Ford, though, for fear of a backlash in the U.S. That's probably a smart move given Toyota's concerns over how U.S. car buyers and legislators will react if, as widely expected, it overtakes GM (GM) this year as the world's No. 1 automaker (see BusinessWeek.com, 12/13/06, "Top Spot in Sight, Toyota's Not Slacking").
Endo also identifies several areas where working together could aid both firms, such as joint purchasing agreements or co-producing cars in other markets, such as India, Russia, or Brazil. The latter could prove attractive to Toyota, which lags rivals in some of the world's fastest-growing markets (see BusinessWeek.com, 8/4/06, "Toyota Hits the BRICs").
Idle Factories Await In hybrids, it could make sense for Toyota to provide hybrid systems or even whole vehicles to Ford. "The quickest fix is that Toyota provides their Prius on an OEM [original equipment manufacturer] basis so that Ford can sell the hybrid car with their own name," Endo says.
Another possibility: Toyota could use empty Ford factories to boost local production in the U.S. in much the same way it plans to build Camrys with Subaru. Starting this spring, Toyota will begin production of 100,000 Camrys a year at Subaru's plant in Indiana. The plant was once jointly owned by Subaru parent Fuji Heavy Industries, in which Toyota has an equity stake, and Isuzu (see BusinessWeek.com, 11/29/06, "Toyota Breathes New Life into Subaru"). Just don't expect anything overnight.
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