General Motors and Isuzu Motors will soon start negotiating a capital and business tie-up deal focused on joint commercial vehicle projects in Asia and Central and South America.
Isuzu, which ranks as a midsize vehicle manufacturer in the international market, is increasingly attracting the interest of global giants such as GM and VW, it recently ended talks with the latter, the Nikkei Weekly noted.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
VW’s interest in Isuzu was the Japanese company’s solid presence in southeast Asia. Commercial vehicles, including pickup trucks, account for an estimated 30% of the global market for new vehicles, and the Association of Southeast Asian Nations’ (ASEAN) commercial automotive market is expected to grow rapidly in the coming years.
ASEAN and Central America are markets in which Isuzu and fellow Japanese truck producer, Toyota unit Hino, have established a strong presence.
Isuzu commands the largest share of the commercial vehicle market in Thailand and is third in Indonesia.
VW has been trying to expand its commercial vehicle operations through subsidiaries such as Scania and MAN. And the economic zone represented by ASEAN is the last major world market in which it still lacks a significant presence. It therefore viewed a partnership with Isuzu as a potentially quick way to crack the ASEAN market.
A tie-up with Isuzu would not involve significant financial risks, as it has reduced its debts to less than JPY300bn (US$3.75 billion), down from JPY1 trillion in the early part of the last decade, when it was struggling. The truckmaker now generates approximately JPY100bn a year in operating profit.
It is also drawing the attention of big automakers in search of partners because it is an independent.
Toyota acquired a stake in Isuzu in 2006 after a struggling GM sold its shares. But Toyota’s stake is an insignificant 6% and it has suspended its joint development projects with Isuzu. Now, the two Japanese companies have little to do with each other.
With a market capitalization of roughly JPY800bn, Isuzu is a prime target for the industry’s giants. But as VW discovered, the Japanese firm is no pushover. Isuzu president Susumu Hosoi and his management team have shown themselves to be formidable and shrewd negotiators.
Prior to the VW talks, Isuzu already revealed itself as a tough talker in capital alliance talks with Daimler. Among its preconditions to a potential deal, Isuzu wanted Daimler to sell subsidiary Mitsubishi Fuso Truck and Bus.
However, Isuzu ended up angering Daimler by claiming that it was overvaluing Mitsubishi Fuso. Its claim was supported by a careful assessment of Mitsubishi Fuso’s assets, based on detailed information from the company’s balance sheet. Isuzu’s own analysis indicated that Daimler had overvalued Mitsubishi Fuso’s securitised assets and group firms.
It therefore continues to keep its options open. Isuzu has also been securing cross-shareholding deals with key suppliers such as JFE Holdings and Akebono Brake in an apparent effort to protect itself against hostile takeover bids.
Isuzu avoids particularly tough negotiators, such as VW, but it has long had strong relations with GM. When Isuzu was under GM’s control, the US automaker avoided intervening in its management, even though it held a large stake.
It is therefore not surprising that Isuzu has shifted its search for a partner from VW to GM, the Nikkei said. And its talks with GM have thus far focused on the extent of the US firm’s involvement in its management.
However, Isuzu is under growing pressure to secure an alliance with a big automaker. It trails competitors such as Hino in the development of environmental technologies and it lacks the financial muscle to jump into the key Indian market.
