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Japanese carmakers Toyota Motor Corp. and Suzuki Motor Corp. came to an agreement on Thursday to mutually supply vehicles in India next year.

The companies stated that Toyota will provide about 10,000 its hybrid and gasoline Corolla sedans to Suzuki, which in turn will produce 30,000 to 50,000 units annually of its compact Baleno hatchback and Vitara Brezza compact sport utility vehicle (SUV).

The deal suggests deepening relationship between Toyota and Suzuki, which are planning on teaming up to continue with technological progresses in areas, such as electrification and autonomous driving. The pair also said they are going to take their time to decide on the merits of capital alliance.    

Manufacturing will start by mid-2019. Under the terms of the agreement, cars built by Suzuki will be rebranded and renamed as Toyota vehicles, while Toyota’s will have the Suzuki badge on them.    

Improving Toyota’s Automotive Business in India

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Analysts said the deal would help Toyota broaden its reach in India, where it has been having difficulty raising sales, due to weak demand for its lower-cost models.

The Aichi-based firm’s Indian market share was just 3.5 percent in the previous year, while Suzuki’s went beyond 40 percent and is on track to overtake Japan to become the third-largest automaker in the world.

Toyota introduced in 2010 a subcompact vehicle model designed for emerging markets, the Etios, but it failed to garner huge attention. The automaker is now looking to bolster its sales of mainstay compact cars in India, with the addition of Suzuki’s vehicles.

The company has built cars exclusively for the Indian market for 20 years, but sales have been hit by weak demand of last two models produced specially for India.   

With Toyota supplying cars to Suzuki, the company hopes to improve local factory operation rates, which has stayed around 50 percent.     

Head of Asia transportation research Janet Lewis said Toyota can further develop its distribution network and move more towards expanding its market by selling rebadged and slightly modified Balenos and Vitaras.   

Suzuki managed to dominate the Indian automobile market through a majority stake in the country’s leading car group Maruti Suzuki India Ltd., which sold about 1.6 million vehicles in 2017, constituting for every other vehicles sold in India.

Manufacturing 50,000 cars for Toyota would account for just a portion of what Suzuki sold in the country last year, but it would still be able to push its annual sales higher than rivals Honda Motor Co. Ltd. and Tata Motors Ltd.      

The Hamamatsu-based group also plans to use Toyota’s hybrids to broaden offerings of eco-friendly cars. The duo formed a partnership in February 2017 to explore joint projects and stated in November that they plan to launch jointly developed electric vehicles in India around 2020.

India became the world’s fourth-largest market for new cars last year behind China, the US, and Japan, with sales of 4.01 million vehicles. The country is expected to overtake Japan in several years.

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