Fuji Heavy Trades GM for Toyota


By Ian Rowley Not content with owning stakes in Japanese carmaker Daihatsu and truckmaker Hino, Toyota Motor (TM) is taking an 8.7% share of Fuji Heavy Industries, the producer of Subaru autos. The deal, announced on the evening of Oct. 5 in Tokyo, is also highly significant for General Motors (GM), which can sorely use cash. Its North American operations have lost $2.5 billion in the first two quarters, making it cash flow-negative.

As part of the deal, GM will sell all of its 20.1% stake, valued at around $740 million, in Fuji Heavy. Toyota will buy 8.7% -- giving it 10% voting rights in Fuji Heavy -- with the remaining 11.4% being sold into the open market. Toyota, Japan's No. 1 car producer, says it's limiting its purchase 8.7% to avoid running into difficulties with Japan's anti-monopoly regulators.

GM's deal with Fuji Heavy dates back to 1999 and includes a program to develop a Saab crossover vehicle, which will now be scrapped. "We've had a good partnership. However, both GM and FHI came to the conclusion that there were not enough collaborative projects to sustain the alliance," Troy Clarke, GM group vice-president and president of GM Asia Pacific, noted in a statement.

OTHER STAKES REMAIN. Toyota denies that the purchase, which will be completed by Oct. 12, was to help shore up GM. The producer of the Lexus has been rapidly expanding in the U.S. -- largely at the expense of GM and Ford Motor (F), prompting fears of protectionist intervention in the U.S. against Toyota. "This [deal] is not for the purposes of supporting General Motors, but developing the relationship between Toyota and Fuji Heavy," insisted Mitsuo Kinoshita, a Toyota executive vice-president, at the Tokyo press conference.

Similarly, Toyota executives in July rejected allegations that it was raising prices of several vehicles to soothe relations with U.S. carmakers. Kinoshita added that Toyota had no interest in taking GM's other Japanese interests off the Detroit giant's hands. As well as its interest in Fuji Heavy, GM also has a 20% stake in Suzuki Motor and 8.4% of Isuzu Motors.

Whatever the reasons for the deal, analysts say it's probably good news for all involved. While details remain scant -- Toyota and Fuji Heavy said little other than that they plan to find efficiencies in "production and development" -- Fuji Heavy certainly could benefit from some of Toyota's savvy. The same day as the deal was revealed, Fuji Heavy announced it was cutting its earnings target from $132 million to $105 million.

"VERY POSITIVE." For GM, the proceeds from selling its Fuji Heavy stake can buy out some workers and send them into retirement. Or it could use the money to help bail out Delphi (DPH) -- its largest supplier -- which is threatening bankruptcy if GM doesn't help fund its restructuring. Analysts estimate that GM could contribute $2 billion to $3 billion to help Delphi.

And Toyota will become the largest shareholder in Fuji Heavy for around $315 million and gain access to Subaru's technologies, such as its batteries that can be used in hybrid gasoline-electric cars. "Full details of the alliance haven't been clarified yet, but [market watchers] have responded to the event in a very positive manner," says Yasuhiro Matsumoto, an analyst at BNP Paribas in Tokyo.

What's quite clear, though, is that Toyota just keeps on growing.

With David Welch in Detroit

Rowley is a correspondent for BusinessWeek in Tokyo


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