GM sells its stake in Subaru maker to Toyota
From Automotive News:
GM sells its stake in Subaru maker to Toyota
Deal puts $302 million in GM's bank account, spells end to Saab 9-6X
By James B. Treece
Automotive News / October 05, 2005
TOKYO -- General Motors is selling its 20 percent stake in Fuji Heavy Industries Ltd., maker of Subaru-brand cars. The move effectively is an admission that an alliance between the two companies has fizzled.
Toyota Motor Corp. is stepping in as Fuji's new alliance partner. It will pay about $302.6 million at current exchange rates, or 34.5 billion yen, to GM for 68 million shares, equal to an 8.7 percent stake in Fuji. Toyota will become Fuji's largest shareholder.
Fuji effectively will buy back the rest of GM's stake in it. GM said it would sell the remainder of its Fuji stock, 89 million shares, on the open market. At the same time, Fuji said it will buy back 90 million of its shares from the open market.
Toyota said it would not take a larger stake in Fuji, nor will it send someone to Fuji to replace Troy Clarke, GM's representative on the automaker's board, in order to avoid problems with Japan's Fair Trade Commission and Anti-Monopoly Law. Clarke and two senior GM executives working at Fuji resigned from the Japanese carmaker on Wednesday, effective immediately.
Saab 9-6X stopped
With the sale, Fuji and GM's Saab unit are halting development of the Saab 9-6X, a crossover vehicle based on the Subaru B9 Tribeca. Fuji will take a $43.9 million charge to cancel that program. Fuji President Kyoji Takenaka said the project was only one year along and was "still a long way from launch."
It is too early to say whether Toyota cars might be built at Fuji's underutilized U.S. assembly plant, Subaru Indiana Automotive Ltd., in West Lafayette, Ind., Takenaka said. "In the future, that potential can be discussed," he said.
Toyota and Fuji will set up a steering committee to explore areas for cooperation and collaboration, specifically in production and r&d.
GM will raise cash with the deal but book a loss on its ownership of Fuji.
GM purchased its stake in Fuji in December 1999 when the Japanese carmaker's shares were trading at about 900 yen a share. Toyota will pay 520 yen, or about $4.60, a share to buy the 8.7 percent stake from GM.
GM said it will take a paper loss of between $700 million and $800 million on the sale.
Mitsuo Kinoshita, Toyota's executive vice president for corporate planning, business development, and finance and accounting, said that after GM contacted Fuji about a sale of its stake, Fuji then contacted Toyota "a few months ago."
"We narrowly focused on Toyota" as a potential partner, Fuji's Takenaka said. One reason, he said, was that "the independence of management will be respected by both parties.
"Within the Toyota Group, we will be able to further hone the advantages and characteristics we have," he said.
Kinoshita said Toyota has heard "absolutely nothing" from GM regarding possible sales of shares in its other Japanese affiliates, Isuzu Motors Ltd. and Suzuki Motor Corp.
"Those tie-ups seem to be going on fairly well," he said.
Why did Toyota buy?
Analysts say there is no immediate and obvious reason for Toyota's interest in Fuji but suggested several long-term reasons.
They dismiss Toyota's praise of Subaru's all-wheel drive and horizontally opposed boxer engine technology. Toyota doesn't need the former, while the latter is incompatible with Toyota's product lineup, they say.
"It may be something invisible to us," says Kurt Sanger, auto analyst at Macquarie Securities. "Fuji Heavy has an interesting lithium-ion battery technology."
UBS Securities analyst Takaki Nakanishi said Toyota's stable of brands -- Toyota, Lexus, Scion, Hino and Daihatsu -- may not be sufficient for Toyota's long-term growth plans.
Nakanishi predicts that Toyota's involvement with Fuji will mirror its previous relations with subsidiaries Hino Motors Ltd. and Daihatsu Motor Co. He says Toyota will make itself invaluable to Subaru for technology, then send engineers and executives to the smaller carmaker, and years later take a majority stake.
Analysts do not expect GM to follow the Fuji sale by selling its 20 percent of Suzuki and its roughly 8 percent of Isuzu.
"Suzuki is a 1 trillion yen company," or $8.78 billion, said Kurt Sanger, auto analyst at Macquarie Securities. "Twenty percent of that is a big chunk of change."
He also ruled out a Toyota purchase of GM's stake in Isuzu. Combining Isuzu with truckmaker Hino Motors Ltd., owned 50.1 percent by Toyota, would run afoul of Japan's antitrust laws, Sanger said.
Plenty of challenges
In the short term, Toyota is taking a stake in a troubled carmaker.
Fuji has fallen behind its own restructuring schedule.
Sales of Subaru's newer cars, including the B9 Tribeca in the United States, are below target -- although through the first nine months of this year, Subaru's U.S. sales are up 5.1 percent to 144,788 units.
GM also provided Subaru with a marketing network for selling cars in China.
"If no one is really sponsoring Fuji Heavy's restructuring, they have a perception risk," analysts Nakanishi said. "People would worry they will go bankrupt."
Fuji's self-image undermined its alliance with GM.
Takenaka and other senior Fuji executives were convinced that the horizontally opposed engines used in Subarus were every bit as integral to the brand's identity as its use of all-wheel drive. That made platform sharing with Saab and other brands that use standard inline-4 or V-6 engines almost impossible.
Almost six years after GM and Subaru linked, they do not share a single platform. Fuji does rebadge the Subaru Impreza WRX as the Saab 9-2X.