With a continuously shifting automotive market, which is now more diversified than ever, complacency is an attitude no brand wants to slip into. Any leader knows that in order to remain competitive, change is a good thing whatever that could signify. 

 

For the first time in its remarkable history, Toyota Motor Corp. has agreed this month to equip some Toyota cars with BMW AG diesel engines, and building on an earlier deal, use Tesla Motors Inc. battery packs in future Toyota electric vehicles.  

 

To put it simply, Toyota is emerging from three years of crisis management - from millions of vehicles recalled to coping with Japan's biggest postwar natural disaster – as a result, General Motors Co. is on track to retake the title of world’s top-selling automaker, which Toyota captured in 2008 from GM. 

 

Toyoda has reason to drive change. The company forecasts profit will fall to 1 percent of revenue this fiscal year, Toyota's second-lowest margin, based on data compiled by Bloomberg stretching back to 1992.

 

At its height, when Fujio Cho and Katsuaki Watanabe were running Toyota in the mid 2000s, the carmaker was generating margins of almost 7 percent. The stock is down about 70 percent from its peak in February 2007.

 

"Toyota used to be able to grow simply by manufacturing the cars it made best, but now it needs to make gasoline and diesel cars, hybrids and electric vehicles," said Mitsushige Akino of Ichiyoshi Investment Management Co. in Tokyo. "If Toyota doesn't reach out to other companies for help in technology, they won't be able to sustain market share."

 

Under this month's agreement, Toyota will equip some of its European models with BMW engines starting in 2014 to gain market share in the region, where most cars run on diesel. In May 2010, Toyota agreed to use Tesla's lithium-ion battery pack and motor on its RAV4 sport-utility vehicle starting early next year. 

 

These agreements for Toyota it are a big deal as the opinion is that they had become too ‘insular’ in Japan. These agreements are of particular interest because what differs these from previous deals is the fact that Toyota is the recipient of another company's technology, not the other way round. 

 

These new alliances may seem like a perfect solution, but there are risks being taken and success is anything but guaranteed for Toyota.

 

"Why would Toyota's partners provide them with the best technology?" Mitsushige Akino said. "In partnering with other companies, Toyota is putting its reputation as a company of quality, 'made- in-Japan' products at risk."

 

Other deals have proved that agreements don’t always fair well. In 1999, Toyota and GM announced plans to share research on hybrid vehicles and hydrogen fuel-cell technology. That agreement yielded no results. While Toyota also supplied hybrid components to Nissan for its gasoline-electric Altima sedan, the companies didn't expand that arrangement beyond a limited supply deal.

 

But for some investors, these kinds of partnerships are key.

 

"Partnerships all seem very necessary," said Edwin Merner, president of Atlantis Investment Research Corp. "Toyota, under the new president, realized that they need to cooperate if they are going to survive and they must get help from companies where they are weak."

 

Only time will tell if this tactical move will yield positive results, but either way I think it is indicative of Toyota’s management ethos and commendable determination to do away with its boundaries and limitations in order to retain that title of the ‘world’s top-selling automaker’. I don’t think that complacency is the reason for their struggles as 20 new models are expected over the next 18 months or so, but more importantly their ability to keep adapting is the reason they have been so successful in the first place.

 

 

Billy Lyon

MotoringTV online editor

 

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