TOKYO -- The formation of the capital partnership between Toyota Motor and Suzuki Motor, which spans an empire that produces 16 million vehicles globally, stemmed from a conversation that occurred only three months ago.
"I asked [Toyota] President Akio Toyoda for a capital alliance in May," Suzuki Chairman Osamu Suzuki told Nikkei Wednesday. Toyota will invest 96 billion yen ($907 million) in its counterpart, for a 5% stake, while Suzuki will hold a 48 billion-yen stake in Toyota.
Osamu Suzuki revealed that he has kept a financial tie-up in mind ever since the two Japanese automakers said they would consider a business partnership in 2016. Sealing the deal was Suzuki's strength in making compact and affordable autos, which Toyota hopes to tap to crack open developing markets.
Japan's largest automaker is also strong in Southeast Asia, as proven by the 30% share in Thailand. But the company is not as visible elsewhere in the developing world.
Suzuki, for its part, was interested in the possibility using Toyota's self-driving technology sometime in the future.
This tie-up now creates roughly three realms in Japan's auto industry. Apart from Suzuki, Toyota also invests in Mazda Motor and Subaru. There is also the alliance between Nissan Motor, Mitsubishi Motors and French peer Renault. Honda Motor has not entered into a capital tie-up with any domestic automaker, but it does partner with General Motors in autonomous driving and other areas.
Toyota and Suzuki have much in common. For one, the two automakers are headed by the direct heirs to the founders. The companies also share the same roots in western Shizuoka Prefecture in central Japan. Those within Toyota and Suzuki's circles thought it would be natural if they tied the knot.
It is believed that Osamu Suzuki made a number of closed-door approaches to Toyota. However, the fear of being dominated by a partner loomed strongly.
"Compared to Toyota, our scale is overwhelmingly small," said a Suzuki executive. "If you take away India [Suzuki's largest market] we would be subordinate in every way."
Past experience only added to those doubts. There was the acrimonious partnership with Germany's Volkswagen that was announced in 2009, and from which Suzuki wanted out in 2011. The two finally dissolved their relationship in 2015.
Unlike General Motors, who had been Suzuki's business partner for more than two decades, "VW came to take control," said a Suzuki executive. The divergent opinions on the operational fronts and different management perspective drove the Japanese automaker away.
This time around, special circumstances have contributed to Suzuki's decision to receive the capital infusion from Toyota. This year, the company announced recalls of about 2 million vehicles due to faulty inspections.
Suzuki is investing roughly 100 billion yen over the next five years to completely overhaul its vehicle inspection infrastructure, which was wracked with issues such as the use of unlicensed auditors.
This spending conflicts with other funding priorities. "The preparations to deal with next generation technology are not in place at all," said a Suzuki executive. The capital alliance with Toyota also opens up the possibility of sharing the costs of developing key technologies.
Osamu Suzuki told reporters Wednesday that he felt regret for staying on the job even after reports of the compliance scandals surfaced. The 89-year-old believes strongly in seeing business leadership transition to the next generation. It appears the capital tie-up is the very reason the patriarch has stuck around for this long.
Suzuki has taken steps to increase efficiency, such as withdrawing from U.S. and Chinese markets, where it was less competitive. But it still faced a difficult road ahead on its own.
Mid-size automaker Mazda's 2017 capital partnership with Toyota proved a turning point for the better, and Suzuki appears to hope for a similar boost from deeper ties with Japan's largest car company.
Suzuki had capital ties with General Motors and Volkswagen, but the Japanese company has said it was forced into these relationships, and dissolving the tie-up with Volkswagen after a falling-out over strategy entailed an international arbitration case that cost Suzuki valuable time.
Asked about the new cross-shareholding relationship with Toyota, Osamu Suzuki described the ratio as "a comfortable level."
"We decided to accept an investment of up to 5% on the understanding that this is a friendly holding," he told Nikkei.
This suggests the bond with Toyota differs from past failed relationships because it springs from an existing partnership. "With this once-in-a-century sea change we're facing, we felt that forming a capital relationship was right," the chairman said.