Toyota and Mazda Alliance Looks to Stem Rising Automotive R&D Costs

NEW YORK ( TheStreet) -- The alliance between automakers Toyota  (TM) and comparatively tiny Mazda (MZDAFannounced last week in Japan lacked a formal commitment beyond the handshake of chief executives, such as an exchange of equity. It did, however, speak to the need for automakers to form such alliances to control the rising costs of research and development.

The fruits of the relationship may be hard to measure, at least for awhile. In time, Toyota -- the biggest and richest of the world's automakers -- may decide that Mazda has too little to offer or that it might be worth a bear hug. But clearly, small automakers like Mazda must pursue alliances  to survive in a world dominated by giants. 

Mazda, which spends about a tenth of what Toyota spends annually on research and development, is under pressure to offer advanced environmental and safety technologies such as fuel-cell engines that run on hydrogen, as well as autonomous systems that increasingly will take over for drivers. Toyota is among the R&D leaders, so it can share with little additional cost. 

The originality and flair found in many Mazda vehicles, which are prized by automotive enthusiasts and cognoscenti, may be what Toyota covets. When Akio Toyoda took over the CEO position in 2009, he vowed that his company would develop more stirring, visually stimulating models, a response to the mass-market Toyota Corollas and Camrys that turned big profits for their soundness and reliability but attracted criticisms of blandness from reviewers. 

"It's not at all about scale, or something that can be seen or measured," said Toyoda at a press conference. He referred to the relationship with Mazda as an "engagement."

 "We think we have a lot to learn from Mazda," he said.

Mazda was part owned by the Ford (Ffrom 1979 through 2010, a collaboration that resulted in jointly developed models and shared components. Ford, under the leadership of Alan Mulally, wound down the formal relationship between the two automakers following the global financial crisis as a way to simplify and narrow Ford's asset base. 

Mazda ADRs rose about 5% following news of the alliance with Toyota. ADRs at Toyota are up more than 11% this year, compared to the Dow Jones Industrial Average, which has risen 2.7% in the same period. 

As the collaboration of the two Japanese automakers unfolds, it serves as a striking, if unintended endorsement, of the views of Sergio Marchionne, CEO of Fiat Chrysler Automobiles N.V.  (FCAU)  Marchionne has grown increasingly vocal about the need of automakers to find ways to share the crushing financial burden of keeping up with government safety and regulatory requirements, not to mention technological advances. 

Renault SA  (RNSDF) and Nissan   (NSANY) swapped equity and created the Renault Nissan Alliance, an arrangement that began in 1999 and lately has been expanded to include Daimler AG  (DDAIF), the maker of Mercedes-Benz.

Figuring out who is besting whom in the global automotive competition of 2015 requires more than a simple scorecard.

The writer has no financial interest in the aforementioned companies.

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