Toyota set to takeover Daihatsu and its small car business

Earlier in the year, Toyota’s executive Aiko Toyoda announced that Japanese automaker would takeover auto manufacturer Daihatsu for $3 billion. The companies have been tied together for many years beginning with an alliance that was formed in 1967, and by 1998 Toyota owned a 51% stake in Daihatsu. Toyota’s move is part of a strategy to sell cars to developing countries where incomes are too low for consumers to purchase large cars. Daihatsu is a OJ-AJ236_TOYOTA_16U_20160502033907producer of very small cars with engine sizes of .66 liter or less. Daihatsu has an interesting factory model whereby cars move down assembly lines side by side instead of the traditional bumper to bumper, minimizing the amount of physical space needed to assemble the vehicles. Moreover, due to machinery failures, Daihatsu removed millions of dollars worth of machinery in its factories and replaced them with laborers who had some sort of military training. Daihatsu has very thin margins on the cars it makes and has to reach out the suppliers that make cut-rate parts for its vehicles. Toyota knows that while Daihatsu’s margins are thin (around 5% ), it feels that by selling the Daihatsu brand to emerging markets it will have a foot-in-the-door to sell Toyota cars once incomes in these areas rise. The benefit to small-car or “kei” car owners is that they cost around $7,000 and have a small ownership tax attached to them.  The benefit to Toyota is that it will increase its sales in small efficient cars which will help them greatly given the fact that its pickup/light truck sales made up the largest portion of its total sales. In conclusion, this move will help Toyota deal with regulatory issues that companies like Mitsubishi and Volkswagen have recently struggled with. It also will help Toyota create a stronger foothold in Southeast Asian car markets where Japanese companies dominate the industry. hqdefault

 

Source: http://www.wsj.com/articles/toyota-pins-big-hopes-on-daihatsus-small-cars-1462265346

2 comments to Toyota set to takeover Daihatsu and its small car business

  • adamsm19

    You mentioned that one benefit that Toyota receives by selling kei cars is that they are small and help to increase the fleet’s average fuel economy. Do any developing countries have standards similar to CAFE that would compel Toyota to produce cars that are not only cheap but fuel efficient?

  • From a control perspective, Toyota has no need to go from 51% to 100%, Daihatsu is already a consolidated subsidiary. My assumption is that there are tax reasons. One minor possibility is that while senior-level transfers occur, there may be residual differentials in internal HR that prevent regular rotation of ordinary workers. But moving to a 100% subsidiary still leaves them as a consolidated subsidiary. So my assumption is a taxation issue. If nothing else, it will end their listing on the stock market and the related expenses for a stand-alone audit and financial reporting.