Toyota, Suzuki courtship intensifies as partnership talks begin

By Naomi Tajitsu

TOKYO (Reuters) - Toyota Motor Corp and Suzuki Motor Corp said on Monday they plan to trade expertise in parts supplies and R&D, in an agreement that will aid expansion in emerging markets and help them cope with rapid technological sophistication.

Any deal could see Toyota benefit from a supply chain that has helped Suzuki dominate India's massive auto market, while Suzuki could hope to access Toyota's innovations in automated driving, artificial intelligence and low-emission vehicles.

"Toyota and Suzuki have agreed to work toward the early realization of a business partnership," they said in a joint statement, singling out areas of possible cooperation such as procurement and environment- and safety-related technology.

They added that they saw no need to rush into a capital tie-up.

The agreement comes about four months after Suzuki, Japan's fourth-biggest automaker, said it was struggling to keep up with research and development (R&D) in an industry simultaneously exploring non-petrol engines and self-driving vehicles - areas in which it has yet to announce any major strategy.

While Toyota has the financial fire power to keep up with technology, the world's second-largest automaker has long struggled to win market share in India where drivers prefer the type of affordable compact cars in which Suzuki excels.

"There's a lot we can learn from the speed at which Suzuki operates and implements changes," Senior Managing Officer Shigeru Hayakawa said at an earnings briefing, where Toyota also announced an upward revision to its full-year profit outlook.

Suzuki, through a majority stake in Maruti Suzuki India Ltd (MRTI.NS), makes every other car sold in the country thanks in no small part to a local supply chain built up since the 1980s. Access to that chain could help Toyota make more cars tailored for India, and possibly compete with Suzuki in a market widely expected to be the world's third biggest by 2020.

Toyota aims to double its share of India's passenger vehicle market to 10 percent by 2025 helped by entry-level cars from minivehicle specialist Daihatsu, an affiliate wholly owned since last year which has yet to gain a presence in the market, a Toyota executive told Reuters last year.

"We would be happy to share lessons we learned from our experience in India and emerging markets with Toyota if they wish, to make this a win-win partnership for both parties," Suzuki Vice Chairman Yasuhito Harayama said at a quarterly earnings briefing on Monday.

Toyota is hoping to mine Suzuki's know-how in low-cost design which has enabled its peer to come up with competitive cars priced below $7,000, according to several company insiders who have spoken with Reuters on condition of anonymity.

In the past, Toyota asked Daihatsu for help in this area but its engineers and parts purchasing managers have told Reuters that establishing supply chains from scratch which can compete with Suzuki's would be highly time-consuming.

The courtship comes after Suzuki and Volkswagen AG (VOWG_p.DE) in 2015 ended a fraught partnership in which Suzuki accused the German automaker of wanting to bring its under its control, while VW objected to Suzuki's purchase of diesel engines from Fiat (FCHA.MI) instead of its own.

Some analysts have questioned whether the latest partnership could see Suzuki compromise its dominance in India, along with its independence.

"(Suzuki) needs access to technology, but would that mean giving up being an independent company?" CLSA managing director Chris Richter said. "I think that's a price too high for Suzuki at the moment."

(Reporting by Naomi Tajitsu; Additional reporting by Norihiko Shirouzu in BEIJING and Aditi Shah in DELHI; Writing by Naomi Tajitsu and Tim Kelly; Editing by Christopher Cushing)