March 13, 2006

Toyota and Fuji Heavy forge production tie-up

By Chang-Ran Kim, Asia auto correspondent

TOKYO (Reuters) - Toyota Motor Corp. and Fuji Heavy Industries Ltd. agreed on Monday for Fuji Heavy to build Toyota's Camry car at Fuji's Subaru plant in the United States and develop gasoline-electric vehicles using its partner's hybrid system.

Fuji Heavy will build 100,000 Camrys a year at its Lafayette, Indiana factory from the spring of 2007 in a move that helps the maker of Subaru cars cut losses at its underused plant and gives Toyota cheap access to extra production capacity.

"I think this is a great first step in building a win-win relationship, with more cooperation to come," Fuji Heavy President Kyoji Takenaka told a joint news conference in Tokyo.

The auto makers had been exploring ways to cooperate in production and development since Toyota became Fuji Heavy's top shareholder in October after the latter dissolved its capital alliance with General Motors Corp.. Toyota, Japan's top auto maker, now owns 8.7 percent of Fuji Heavy.

Fuji Heavy's decision to use Toyota's hybrid system would help it bring the cars to market sooner than it would have on its own. It would also help Toyota, the world leader in hybrid technology and sales, achieve its aim of establishing the powertrain as the main fuel-saving alternative to conventional cars.

"Toyota has the world's most advanced hybrid technology, and we decided that tying up in this field would be the most efficient and shortest route to offering hybrids," Takenaka said.

The two companies also agreed that Fuji Heavy, a niche car maker best known for its symmetrical all-wheel-drive powertrain, would develop vehicles for Toyota in a project involving 100 Fuji engineers.

"The crafting of these agreements over such a short period of time (since October) is an indication that our two companies share many common views toward car-making," Toyota President Katsuaki Watanabe said.


The latest agreement will boost Toyota's annual output capacity to around 2 million cars by 2008 in North America, where it is carving out a bigger share thanks to the popularity of its cars, most notably its growing line of hybrid vehicles.

Meanwhile, Subaru's sales have sputtered in the United States -- Fuji Heavy's most important market -- as the premium B9 Tribeca SUV and remodeled Legacy fall short of expectations, leaving the Indiana plant underused.

Fuji Heavy said its U.S. plant, Subaru of Indiana Automotive (SIA), would spend about $230 million to make way for the Camry, by combining production of the Legacy and B9 Tribeca into one line, and modifying the second line to introduce Toyota's industry-leading production technology for the Camry.

That would turn SIA into a 240,000-units-a-year factory and create about 1,000 new jobs at full production, they said. The plant has had excess capacity since the withdrawal of Fuji's former joint venture partner, Isuzu Motors Ltd..

Fuji Heavy's shares jumped 6.49 percent to 673 yen on Monday, while Toyota ended up 0.79 percent at 6,340 yen. The Nikkei average rose 1.53 percent.