Can Toyota 'Digest' Fuji Heavy's Technology?

Fuji Heavy Industries developed horizontally-opposed engine in 1966. The automaker accepted equity participation by Toyota.

 

   Mid-ranking Japanese carmaker Fuji Heavy Industries Ltd. (Subaru) has ended its capital and operational tie-up with General Motors Corporation of the U.S. and will allow Toyota Motor Corporation to take a stake in it. Industrial sources say that Fuji Heavy's value as a business enterprise lies in its technological capabilities and inventiveness. Now attention is focused how Toyota will use these strengths.
   Of 20.4% of the issued shares GM owns in Fuji Heavy, 8.7% (68 million shares) will go to Toyota (35,400 million yen). The remaining 11.7% will be sold on the market with Fuji Heavy as buyer. Fuji Heavy looks set to leave GM's umbrella and come into the Toyota fold, leveraging the sterling reputation of the leading Japanese carmaker as it seeks ways to get its business back on track.

Disappointing Results from Tie-up with GM

   Fuji Heavy entered its capital tie-up with GM in December 1999, after Nissan Motor, until then the largest shareholder in Fuji Heavy, moved to divest its stake as part of restructuring under its alliance with Renault of France. But the results of the tie-up with GM have been disappointing. Joint development of small cars and other projects viewed as highly promising have made almost no progress.
   Fuji Heavy was formerly the aircraft manufacturer Nakajima Aircraft Company, and was famous for developing the engines of the Hayabusa fighter used by the defunct Imperial Japanese Army and of the navy's Shidenkai interceptor. While Toyota and Nissan were still relying on technology introduced from overseas automakers to make their own cars in the 1950s, only Fuji Heavy had the ability to develop passenger cars with its own technology. The models it currently makes are equipped with horizontally opposed engines employed worldwide only by Fuji Heavy and Porsche of Germany.

Technology and Inventiveness a Burden, Not a Boon

   The general view among observers of the Fuji Heavy-GM tie-up is that technology and creativity formed a stumbling block, not an asset, in the development of the relationship. Horizontally-opposed engines give cars a better run compared to the more common V- and series-type engines, but they are 'difficult to make and repair,' according to a Nissan executive. Moreover, design methods differ from those for other types of engines, limiting scope for collaboration such as parts- and chassis-sharing.
   This stumbling block will of course also be faced by Fuji Heavy's new partner, Toyota. It is widely thought that the reason why Toyota decided not to buy GM's full stake in Fuji Heavy, but opted for the carefully balanced figure of 8.7%, was that 'the market could not completely overcome its uncertainties and worries about the tie-up.'
   Fuji Heavy and Toyota have set up a joint committee to discuss the exact areas of collaboration. Its immediate priorities are likely to be: 1) production of Toyota cars at Fuji Heavy plants in the U.S., and 2) providing Fuji Heavy with Toyota's advanced environmental technology. How far the relationship between the two companies goes remains to be seen.