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As GM courts partners, Toyota watches closely

Toyota is keeping a close eye on the proposed alliance of General Motors, Nissan and Renault.
/ Source: The Associated Press

Toyota is keeping a close eye on the proposed alliance of General Motors, Nissan and Renault.

The three-way tie-up doesn't appear to pose any immediate business threat to Japan's No. 1 car company, which continues to grow steadily in market share and profits while going it alone for the most part. Toyota Motor Corp. has opted for only limited collaboration with rivals, on certain products for certain markets.

But a partnership that will bring struggling General Motors Corp. into the seven-year alliance between Nissan Motor Co. of Japan and Renault SA of France would have symbolic and, perhaps, political significance.

It would be the biggest ever in sheer size, boasting a combined annual production of 15 million vehicles, or about one-fourth of world production.

That has raised speculation that Toyota might ready an alternative offer if the deal doesn't work out. It has Toyota executives talking, if not revealing any plans.

Toyota Executive Vice President Mitsuo Kinoshita, for one, acknowledges the plight of General Motors is certainly "a big issue for America."

"We want to do what we can, and we're hoping for the best," he said on the sidelines of a recent news conference in Tokyo. "But we can't offer a helping hand now. GM is already in talks with Renault-Nissan."

Koji Endo, auto analyst at Credit Suisse First Boston Securities in Tokyo, believes no Japanese automaker — Toyota, Honda Motor Co. or Nissan — has much to gain in the short run by buying a stake in GM.

The Japanese automakers are doing fine on their own — boosting market share in the U.S. as soaring oil prices make fuel-efficient models such as the Toyota Corolla and Honda Civic increasingly attractive. The last thing they need is to take on ailing GM, Endo said.

Burdened with towering health care and pension costs for its workers, GM is in the red, losing $10.6 billion last year, shuttering plants and sending thousands of workers to early retirement. Last week, GM reported a better-than-expected $3.2 billion loss for the second quarter, mostly on employee buyouts and other restructuring costs.

By contrast, when Toyota reports first fiscal quarter earnings Aug. 4, it expects solid profits and sales, especially in the U.S.

"The only concern Toyota may have would be entirely political," Endo said. "Good relations with the U.S. is critical to Japan, and after all Toyota is Japan's biggest company."

Toyota officials tend to be edgy about a possible protectionist backlash in the U.S., remembering all too well the "Japan-bashing" of the 1980s. Japanese automakers were blamed for stealing car sales and U.S. jobs, and outraged auto workers smashed Japanese cars in protest. It's only in recent years Japanese automakers have won trust as corporate citizens in the U.S.

For decades, Toyota has had relatively friendly relations with General Motors. Toyota also has an agreement on hybrid ecological technology with Ford Motor Co.

From "salarymen" to prime ministers, Japanese are well aware of the importance of General Motors to the U.S., symbolized in the line, "What's good for General Motors is good for the country," similar to the way Toyota has a special place in Japan as the nation's top automaker.

Toyota officials say they used to look to GM as an example when Toyota was building its business and playing catch-up with American automakers. Toyota and GM set up a joint venture manufacturing plant in Fremont, California in 1984, called New United Motor Manufacturing Inc., or NUMMI, and the two companies have exchanged information on advanced environmental technology for autos.

The nervousness about GM's recent problems has been growing as it became increasingly clear that Toyota's and GM's fates couldn't be more different.

Toyota's profits are ballooning, at $12 billion for the fiscal year ended March 31, its sixth straight record fiscal year, boosting market share in the U.S. thanks to a reputation for quality and fuel efficiency.

Before the possibility of the GM-Renault-Nissan mega-alliance, some analysts had said it's probably only a matter of time before Toyota overtakes GM as the world's biggest automaker in annual vehicle production and sales.

Toyota President Katsuaki Watanabe says the company is taking a hands-off approach as a spectator to the GM talks with Renault and Nissan, but he stressed that Toyota's ties with GM will continue, including NUMMI.

"I feel it is an extremely great presence in a leading American industry," he said of Toyota's view of GM.

In recent years, Toyota has been wooing GM to work together in ecological technology, such as hybrid and fuel-cell cars, a collaboration that won't involve a capital investment but be symbolic in fostering exchange.

But GM forged an agreement last year with German automakers DaimlerChrysler AG and BMW to work together on hybrid technology, appearing to spurn Toyota's overtures.

In a move widely seen as bailing out GM's financial mess, Toyota bought a 8.7 percent stake in Fuji Heavy Industries Ltd. for about $315 million last year and became the top shareholder in the maker of Subaru cars. GM decided to sell its 20 percent stake in Fuji as part of its efforts to focus on its North American operations.

Koichi Sugimoto, auto analyst with Nomura Securities Co., said Toyota is so powerful it's unlikely to be threatened by a GM-Renault-Nissan alliance.

If anything, he said, Carlos Ghosn, who heads both Renault and Nissan, decided to go ahead with the talks with GM Chief Executive Rick Wagoner partly to fight Toyota's domination.

"Toyota is so impeccable and ruthless, competing against it is getting extremely tough," said Sugimoto. "Rivals have to come up with new ways to compete."

Ghosn already has celebrity status in Japan for having engineered Nissan's turnaround from near-collapse since 1999. Helping GM — if it works — would add to his reputation.

Ghosn denied he is trying to fight Toyota's domination with the alliance, but he was careful to stress GM's symbolic importance.

"I am totally aware General Motors is an icon in the U.S.," he said in Tokyo. Nissan has a similar status in Japan and Renault in France, he added.

"Because I know that, I don't believe in anything hostile," Ghosn added. "I believe this has to be a strong partnership."