50 years of dating: How Japan's oldest car company came under Toyota's wings

• Daihatsu is 116 years old while Toyota is 30 years younger
• In its first 60 years, Daihatsu didn't even speak to Toyota
• Toyota initially had zero interest in Daihatsu; it would take almost 50 years before Daihatsu merged with Toyota, the below explained why it took so long

Many of us in this part of the world see Daihatsu (Perodua to us Malaysians) as a smaller, cheaper Toyota. But Daihatsu wasn’t always a Toyota underling.

Daihatsu is Japan’s oldest engine manufacturer, building its first engine in December 1907, nearly 30 years before Toyota Motor’s founder Kiichiro Toyoda fired up the first Toyota Type A engine.

Despite being older than Toyota, Daihatsu initially spent 20 years solely as an engine supplier for power generators and small boats. The first Daihatsu car (three-wheelers don’t count) didn’t come until its 51st anniversary. By then, Toyota’s Koromo plant was already exporting the Crown.

Daihatsu originated from Osaka, first as Hatsudoki Seizo Company, Ltd. in 1907, starting as a partnership between the local government and a technical college, with the goal of generating jobs.

Toyota on the other hand, started as a ‘secret’ passion project by Kiichiro Toyoda, heir of weaving machines manufacturer Toyoda Automatic Loom Works.

In modern day speak, Daihatsu was a government-linked company (GLC) while Toyota was a start-up by a car-crazy son of an industrialist risked all his inheritance money on. The two companies can’t be any more different.

A Tinder match neither swiped for

In the early days, Toyota cars competed with Daihatsu’s. Daihatsu and Toyota won’t talk to each other until 1966, one year after Japan announced that it will liberalize its automotive industry by cutting the 40 percent import duty to 36 percent within 3 years (by 1968), before eliminating it completely by 1978.

At that time, Western automotive technology was said to be 25 years ahead of Japan. To brace themselves for the onslaught of imports, Japanese companies steeled themselves and started merging / forming alliances.

Prince Motors, maker of the now-famous Skyline merged with Nissan. Hino entered a capital tie-up with Toyota, and as part of the agreement, ceased manufacturing passenger cars to avoid competition with Toyota.

In the highly social, connections-driven Japanese business culture, banks served as matchmakers, pairing up their clients in areas where they saw business potential, so they can finance the expansion.

Back then, Daihatsu was financed by Sanwa Bank, while Toyota used both Mitsui Bank and Tokai Bank. Today, Sanwa and Tokai have merged to form MUFG bank, while Mitsui Bank is now known as Sumitomo Mitsui Banking Corporation (SMBC).

Sanwa wanted to play with the big boys and in a very shrewd move, Sanwa proposed for Daihatsu to merge with Toyota.

Daihatsu had no real need to work with Toyota. In fact, then Toyota President Eiji Toyoda questioned his counterpart at Sanwa Bank Tadao Watanabe on the logic of his pitch:

“From what I can see from its balance sheet, Daihatsu is an excellent company, the epitome of solid management. Why would they need us?”

Daihatsu’s financial status was healthy enough for it to stay independent but Sanwa wanted to ride on a Toyota-Daihatsu capital tie-up so it could burrow into Toyota’s Mitsui-Tokai fold.

But Daihatsu was also willing to play along because its President Yuji Koishi was no romantic and he knows that a prosperous present does not guarantee a prosperous future.

Koishi, a pragmatic leader, understood that being a compact car specialist, Daihatsu, although profitable then, might struggle to survive against foreign competition.

Toyota had initially suggested that Daihatsu concentrate only on kei minicars, leaving the Publica and Corolla segments to Toyota, but Daihatsu disagreed.

Daihatsu was aware of its strengths – a robust balance sheet, operational excellence, and a reputation for producing high-quality, fuel-efficient cars. Daihatsu has as much to offer Toyota as Toyota has to Daihatsu.

The two companies opted for an alliance instead of an outright merger, though the latter would occur decades later. Daihatsu would continue to develop its own line of compact cars but in segments where Toyota has a clear advantage, it would rebadge Toyota models. The agreement for a cooperative alliance was signed on November 10, 1967.

The deal was essentially a merger but unlike Western M&As, the Japanese took very small baby steps, spanning over decades, to preserve harmony and avoid job redundancies. Since companies were financially strong, there was no benefit in making sudden risky moves.

The Japanese implicitly understood the need to honour what they say. Both Eiji Toyoda and Yuji Koishi were confident that their successors will continue to work towards greater integration between Toyota and Daihatsu, progressing on their own pace.

The first new Daihatsu model launched after the alliance is the Consorte Berlina, which was a rebadged Toyota Publica.

Subsequent generations of Daihatsu products were developed with more and more input from Toyota. The Daihatsu Charmant sedan for example, competed with the Toyota Corolla but it was also built using Corolla parts purchased from Toyota.

Daihatsu’s more affordable Charade hatchback complemented the pricier Toyota Starlet, together mounting a two-pronged attack on competitors like the Nissan March and Mitsubishi Colt.

Even without jumping into a marriage, the loose Toyota-Daihatsu alliance was benefiting both parties very well.

Attempting first base, after 21 years of dating

It was only in 1998, twenty-one years after the initial agreement, that Toyota raised its shareholding in Daihatsu to 51 percent, thus making Daihatsu a Toyota-controlled entity.

Daihatsu again proved its value when Toyota wanted to enter China. When China joined the World Trade Organization in 2001, Toyota was looking for a local manufacturing partner because Chinese regulations required it. Guess who introduced Toyota to local Chinese contacts?

Decades before China opened its trade borders, Daihatsu already had a licensed manufacturing agreement with Tianjin FAW to rebadge the Daihatsu Charade and Hijet as the FAW Xiali and Huali Dafa.

Sidenote: the FAW Xiali was copied by Geely as its first car, the Geely Haoqing.

Via Daihatsu, Toyota established Tianjin FAW Toyota Motor, one of Toyota’s two local Chinese joint ventures that continue to exist today.

As part of the reorganization, Daihatsu exited the Chinese and European markets (Toyota will handle those markets) to focus on emerging markets in Southeast Asia.

Up until this point, the car industry is heavily focused on Japan, Europe, and USA – sexy markets headlined with sophisticated, technologically-advanced cars.

However, at the turn of the century emerging markets were contributing close to half of all new cars sold globally, while volumes and profit margins in the sexier developed markets have either plateaued or going backwards.

To survive, car companies began paying more attention to emerging markets. Indonesia and Malaysia became Daihatsu’s focus. Just a decade earlier, Daihatsu was invited by then Prime Minister Dr. Mahathir to participate in our second national car project.

By 2001, Daihatsu restructured its shareholding of Perodua to allow it greater control over manufacturing and product development.

Perodua was split into two arms:

• Daihatsu-controlled manufacturing arm Perodua Auto Corporation Sdn. Bhd. (PCSB)
• Local partner UMW-controlled sales arm Perodua Sales Sdn. Bhd. (PSSB)

PCSB serves as the holding company for Perodua Manufacturing Sdn. Bhd. (PMSB), Perodua Global Manufacturing Sdn. Bhd. (PGMSB), and Perodua Engine Manufacturing Sdn. Bhd. (PEMSB).

To put it simply, Daihatsu controls all aspects of the product, while UMW’s side of Perodua handles sales and after-sales.

All these Perodua companies are parked under the 38 percent UMW-controlled Perusahaan Otomobil Kedua Sdn. Bhd. (POSB).

This is the beginning of Toyota designating more roles for Daihatsu (and subsequently Perodua) in Southeast Asia.

The first Daihatsu-lead Southeast Asia project for Toyota was the Daihatsu Xenia / Toyota Avanza twins. Buoyed by their success, Indonesia quickly became Daihatsu’s biggest overseas market. Malaysia followed behind, thanks to the Perodua Myvi, Bezza, and Alza.

Next was the Daihatsu Terios / Toyota Rush, which Malaysians also know it as the Perodua Aruz, followed by the Daihatsu Ayla / Toyota Agya / Perodua Axia.

All these products were developed and produced by Daihatsu / Perodua, with Toyota-badged versions built under a contract manufacturing agreement.

Consummating the marriage, nearly 50 years later

It was only in 2016, nearly 50 years after Eiji Toyoda and Yuji Koishi signed their first agreement together, Daihatsu became a 100 percent-owned subsidiary of Toyota Motor. In that same year, Toyota and Daihatsu established a jointly-owned internal company called Emerging-market Compact Car Company (EMCC).

Thus begins the next phase of Daihatsu’s role within Toyota.

Under EMCC, Daihatsu was given the task to develop new Toyota models aimed at emerging markets.

The DNGA platform cars that Perodua sells today – Axia, Alza, Ativa, plus the Toyota Veloz, and Toyota Vios are by EMCC.

More Malaysian than we give them credit for

Few realize that the Malaysian talent in Rawang do more than just reskinning Daihatsu cars.

Perodua’s Rawang facility is already well into a decades-long process to become an independent full-fledged automotive R&D base for Daihatsu, starting with simple upper-body development for the second generation Myvi, and now the AC100 generation Toyota Vios.

Malaysia is Daihatsu’s regional R&D hub and Perodua does development work for Daihatsu models sold in Japan, including new generation DNGA-based models like the Daihatsu Move Canbus.

Contrary to popular opinion, the Perodua Alza is not a mere rebadged Daihatsu Xenia. Unlike Proton’s arrangement with Geely, Daihatsu don’t pass the blueprints of a completed Daihatsu to Perodua after it is done with it. Instead, the Malaysian team at Perodua was involved in the Xenia-Veloz-Alza development since Day 1.

This is why the Perodua Alza was launched within the same week as the Daihatsu Xenia and Toyota Veloz in Indonesia, because there was no modification or additional parts localization required. Everything was planned since Day 1.

The next step for Perodua is powertrain electrification. The company isn’t revealing much yet, but the development work here in Rawang will be applied to cars sold in Japan as well.

Not bad for a company that started 29 years ago with just a little Perodua Kancil.