GM to Increase Stake in Isuzu Motors to 49%
General Motors Corp. said Friday it will increase its control of struggling Japanese truck and diesel engine maker Isuzu Motors, a move that illustrates both the quickening pace of the auto industry’s global consolidation and uncertain times in the Japanese industry.
GM, the world’s largest auto maker, will raise its ownership of Isuzu to 49% from 37.5% with an investment of $456 million. The deal will provide cash for the financially shaky Isuzu while giving GM’s worldwide truck-building capability a boost.
“We will see more of this,” said David Healy, analyst with Burnham Securities. “The weaker Far Eastern producers are ripe for this kind of consolidation.”
Already the South Korean auto industry, which until recently had five independent auto makers, is controlled by just two: Hyundai and Daewoo. And the weakest of Japan’s 11 auto manufacturers are being circled by potential suitors.
Toyota recently acquired control of Daihatsu, the struggling maker of minicars. GM tripled its stake in Suzuki to 10% earlier this year. Nissan Motor Co.’s prolonged financial woes are making it subject to continuing takeover rumors, which it denies.
Japan’s four commercial truck makers, including Isuzu, are losing money. One, Hino Motors, is expected to be acquired by Toyota Motor Corp., which currently owns 20%. Meanwhile, DaimlerChrysler Corp. is negotiating for a major stake in Nissan Diesel, with a deal expected early next year.
The economic crisis in Southeast Asia coincides with a worldwide glut of vehicle production capacity. There are enough plants to produce one-third more vehicles, about 20 million units, than are needed to meet worldwide demand.
This overcapacity was cited as one reason for the recently completed merger of Chrysler Corp. and Daimler-Benz and is expected to prompt other auto makers to seek acquisitions or joint ventures.
GM made its initial equity investment in Isuzu in 1971. The alliance has grown stronger in the last two years as GM has moved to fit Isuzu into its global manufacturing strategy.
With GM’s latest investment, Isuzu will design GM heavy trucks at plants throughout the world. The vehicles will share cabs, chassis and other parts as the partners try to make better use of factories and cut costs.
The two companies already make trucks together in a GM plant in Wisconsin. Isuzu is developing a GM pickup for sale in the U.S., Europe and Brazil. It also is taking the lead in developing diesel engines for GM.
“With this agreement, Isuzu assumes an even more important role as an equal partner within GM’s global alliance,” said John F. Smith Jr., the U.S. auto maker’s chairman and chief executive.
In a news conference in Japan, Smith said GM chose to limit its stake to 49% to preserve Isuzu’s independence. Still, analysts say, GM’s stock holdings give it effective control of Isuzu, even though it holds only five of 35 seats on Isuzu’s board of directors.
Isuzu, one of the world’s leading makers of medium- and heavy-duty trucks, has been struggling as commercial truck sales have slumped 40% in Japan this year. The company lost $42.6 million in the six months ended in September.
Kazuhira Seki, Isuzu’s chairman and chief executive, said GM’s investment will provide his company with the capital for new projects and increase its competitiveness.
The agreement, he said, will help Isuzu achieve its goal of becoming the world’s leading manufacturer of diesel engines and commercial vehicles. Beyond its roles in those areas and in making pickup trucks, Isuzu could soon be developing sport-utility vehicles, the U.S. market’s fastest-growing segment, for GM as well.
GM shares fell 50 cents to close at $71.50 on the New York Stock Exchange.
On another front, Nissan said it will boost overseas output 3% next year while scaling back domestic production. It may even close a factory in Japan, as it works to reduce export costs and changes its sales strategy to revive profit.
Nissan, Japan’s second-largest auto maker, denied that it is seeking an equity investment from other auto makers. The denial followed a report earlier this week in Der Spiegel that DaimlerChrysler was in talks to buy a stake in Nissan. The German magazine also mentioned Renault of France and Ford Motor Co. as potential partners.
“I can’t say for the future, but right now there’s no need to sell an equity stake,” said Nissan President Yoshikazu Hanawa.
However, he confirmed that Nissan is discussing selling a stake in its diesel operations to DaimlerChrysler.
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Times wire services were used in compiling this report.
