Global Insight Perspective | |
Significance | Toyota's president Katsuaki Watanabe has said that the company has no ambitions to join or block the proposed alliance between General Motors and Renault-Nissan. |
Implications | Watanabe's comments suggest that Toyota, while obviously an interested observer, is unsure of the potential benefits to all parties of the mega-alliance mooted by GM's largest shareholder Kirk Kerkorian. |
Outlook | Even if the proposed alliance between GM and Renault-Nissan does proceed, it is likely to have little material effect on Toyota in the short or medium term. Toyota kept its distance from the acquisition and merger frenzy that swept the global automotive industry in the 1990s, and yet the company has subsequently gone from strength to strength while its rivals have faltered. |
Toyota Unmoved By General Motors and Renault-Nissan's Plans
Toyota's president Katsuaki Watanabe has quelled speculation that his company was considering offering an alternative proposal to General Motors (GM) for a major alliance, possibly in order to block the growth ambitions of Toyota's biggest domestic rival Nissan. In a press conference at a Tokyo hotel, Watanabe said he did not want to comment in detail about the proposal being considered by GM, Renault and Nissan for a global alliance, but he categorically denied that Toyota would be interested in forming a similar alliance or attempting to block the move. According to a report by Associated Press (AP) he said, "We are not thinking of participating." Toyota's only shareholdings in other automakers currently comprise majority holdings in its Japanese subsidiaries Daihatsu and truck-maker Hino. It is almost unique as a global carmaker by not having holding stakes in any foreign carmakers. Toyota does have an existing relationship with GM however, through the New United Motor Manufacturing Inc (NUMMI) plant that was established with GM as a joint venture (GM) back in 1984. Watanabe said that NUMMI and other minor technical collaborations with GM will continue unaffected, but that he does not see any other tie-ups in the near future.
Toyota has Other Issues to Consider
Watanabe also commented at the press conference about the recent minor scandal that has clouded the company’s operations which has led to criminal charges against three of the company's executives over an alleged recall cover-up. Watanabe said, "I take this seriously and see it as a crisis. I want to apologise deeply for the troubles we have caused." The recall involving the Toyota Hilux model was allegedly delayed for eight years, despite accusations that Toyota managers knew about a potentially serious issue with the steering of some models. The situation was investigated by Japanese police after an accident in 2004 which left five people injured. The Nihon Keizai Shimbun (Nikkei) newspaper, citing sources close to the Ministry of Land, Infrastructure and Transport, has said that the Japanese government is planning to impose an administrative penalty on Toyota. The company denies its management was involved in any wrongdoing and has been cooperating fully with investigations. Despite the distractions presented by the potential alliance between GM and Renault-Nissan, as well as the recall scandal, Watanabe reiterated Toyota's plans to hits its 2006 sales and production targets. He said, "We will make utmost efforts to meet the previously stated global production target of 9.06 million and sales goal of 8.85 million".
Outlook and Implications
There is no doubt that if GM and Renault-Nissan were to achieve a successful alliance it would be a serious challenge to Toyota's inexorable rise to becoming the world's number one carmaker, at least in terms of volume. However, Toyota appears to have no desire to offer a potential alternative deal and is keeping a watching brief. This appears to be a wise strategy as there is little obvious rationale for an alliance between Toyota and GM. Both companies are at very different levels in their strategic development. GM is in the middle of a restructuring, focused on becoming a smaller, nimbler and leaner outfit in North America (GM has moved to sell assets and slash its hourly work force by 35,000 workers as part of a cost-cutting plan aimed at generating cost savings worth US$5 billion), able to react more quickly to market forces. Toyota on the other hand has been consistently recording record profit figures in recent years, with net profit rising by 17.2% to ¥1.37 trillion in 2005/06. The company also an industry leader in terms of its research and development (R&D) spending, plant productivity and quality standards. It is frankly difficult to see how Toyota would benefit from taking a major holding in loss-making GM, and if the proposed alliance between GM and Renault-Nissan turns sour Toyota is likely to be the main beneficiary.