Planned GM Isuzu Alliance Holds Great Promise
BMI View : As Isuzu restarts business tie-up talks with GM on a possible alliance, we see plenty of synergies for both sides to exploit. Freed from the chains of a heavy US government ownership, GM can explore options such as a capital alliance and leverage Isuzu's truck distribution channels in Asia, with Isuzu on the other hand acquiring the hybrid technology know-how from GM. We forecast total LCV sales in Thailand, Indonesia, Philippines and Malaysia combined, to grow at an average 9.5% annually over the 2013-2017 period, which would bode well for a longer-term tie-up between the two firms.
Isuzu Motors Ltd is aiming to restart talks with General Motors Company (GM) on a possible alliance. Previously, the two companies forged a capital and business partnership in 1971, with GM increasing its stake in Isuzu to 49% in 1999. However, when GM was facing deteriorating financials in 2006, it sold its stake and broke off its capital alliance with Isuzu. The proposed new alliance will jointly develop pick-up trucks and strengthen sales in South East Asia (SEA) emerging markets. As such, both the companies plan to jointly develop a next-generation pickup truck by combining Isuzu's fuel-efficient diesel engines with GM's hybrid technology.
We believe a tie-up of some sort will have synergies to be exploited for both companies. With a previous business partnership which lasted more than 30 years, it is likely that both firms have a deep understanding of each other's culture and working styles. Although GM is the world leader in pick-up trucks, it has been struggling to make inroads in the South East Asian market. Isuzu on the other hand has an almost 30% market share in the Thai pick-up truck market and effectively uses Thailand as a base to export trucks to other parts of SEA ( see our online service, November 05, 'Isuzu Trucks To Leverage On Thailand Production Base'). We see GM being able to tap Isuzu's distribution channels in Asia.
Isuzu, on the other hand, is keen on GM's hybrid technology and we see the firm as being able to benefit from a technology transfer in this area, through a business partnership. In fact, the US government whittled down its stake in GM during December 2012, resulting in a current owner ship of the company of about 19% ( see 'GM Regains Some Identity- At A Premium', December 21 2012). We believe this reduced US government stake will give GM more leeway in exploring joint development projects and capital alliances, such as the one with Isuzu.
BMI is bullish on ASEAN vehicle sales in the next few years. The formation of the Asian Economic Community (AEC) in 2015 will see intra-ASEAN tariffs eliminated, which would then make it easier for automakers to sell vehicles in the various growth markets. Furthermore, when we look at the growth rates of four of the largest light commercial vehicle (LCV)markets in ASEAN (Thailand, Indonesia, Philippines and Malaysia), also being markets we are bullish in, the proposed truck partnership between GM and Isuzu showcases great potential. We forecast combined LCV sales in these four markets to grow at an average 9.5% annually over the 2013-2017 period, to hit 1.6mn units by 2017.
|ASEAN Growth Markets|
|Total LCV Sales In Selected ASEAN Countries, Units (LHS); Y-O-Y Growth (RHS)|