Toyota Motor contemplates a complete buyout of Daihatsu

By Staff Writer

Jan 27, 2016 10:41 PM EST

Toyota Motor has announced its interest in buying out Daihatsu Motor Co. and making it a wholly owned subsidiary. It plans to retain the Daihatsu brand on mini-vehicles and make a bigger impact on emerging markets.

As represented by The Economic Times, Toyota stated, "We are constantly considering a number of possibilities relating to Daihatsu, such as partnerships or business restructuring, including making the company a fully owned subsidiary." A CLSA senior research analyst Christopher Richter emphasized the advantages of the buyout by saying that "I can easily see the Daihatsu brand used in the same way that VW uses Skoda or Renault uses Dacia or Nissan uses Datsun as a low-cost, sub-premium brand to the core brand." Following all the deal chatter, Daihatsu shares rose by 20% and Toyota's by 3.6%.

Bloomberg represents that Toyota currently holds 51% stake in Daihatsu whose market valuation stands at 630 billion yen ($5.31 billion), and the remaining 49% stake is valued at 360.8 billion yen ($3 billion).  The automaker plans to exchange the treasury stocks for all of Daihatsu's within the first six months, if possible. The full ownership by Toyota would give companies like Suzuki stiff competition in Japan's minicar segment, which has expanded despite a shrinking auto market. Daihatsu also has a strong presence in the South-East Asian markets.

Toyota's standalone market share is a mere 5% in emerging markets like China, India and Brazil, according to Nikkei Asian Review. While the Japanese company has been trying to improve the situation, its competitors like Volkswagen and General Motors have already secured a strong footing there. Absorbing Daihatsu would give the bigger company a much-needed boost in the emerging economies. Additionally, it would be able to reduce purchasing costs by getting the parts made in-house instead of buying them from a third party.

Toyota's sales, for the first time, hit 10 million vehicles in 2014, which is expected to touch 10.11 million in 2016. However, the US market propagating this growth is slowing down, forcing the Japanese automobile giant to look for other diversification options that would not make it solely dependent on the US. On the other hand, Daihatsu depends mostly on Japan for its sales numbers, where it holds around 30% of the domestic minicar market.

Mini-vehicles are extremely popular in Japan, accounting for almost 40% of the auto sales in the country, mainly because they have cheaper maintenance cost. But competition like Honda's N series coupled with April 2014 tax hike and minicar ownership tax hike have started eating away at the once-generous profits. Therefore, a Daihatsu buyout by Toyota at this moment couldn't be better timed, to join forces and maximize profits, at the same time securing the leading position in the emerging markets.

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