Toyota and Isuzu End 12-year Diesel Collaboration

All good things must come to an end. Amid the growing pushback on diesel, Toyota Motor Corporation and Isuzu Motors Ltd have decided to dissolve their joint partnership on diesel engines.

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The two Japanese automakers initially signed the agreement in November 2006 for the joint development and production of diesel engines. At the time, Toyota aimed to capitalize on Isuzu’s expertise in diesel technology. The partnership also resulted in Toyota acquiring a 5.89% stake in Isuzu.

The collaboration spawned a 1.6L diesel plant for small passengers destined for the European market, for production in 2012. The turbodiesel mill was supposed to power C-segment like the Euro-spec version of the Toyota Corolla. However, financial woes on Toyota’s side led to the engine’s production being postponed indefinitely.

The subsequent dieselgate scandal from Volkswagen, falling demand for diesel passenger vehicles in Europe, and stricter emissions standards in the EU were the final nails in the partnership’s demise.

Toyota says it will divest its entire stake in Isuzu “in the future”, while shifting focus to the growing market for hybrid vehicles (it currently sells seven hybrid models in the US). Diesel development for commercial vehicles will continue through Toyota’s Hino subsidiary, which has a joint agreement with Volkswagen’s bus and truck division.

Unfortunately for Isuzu, the dissolution has left it out in the cold. This means it’s now the only major Japanese automaker that doesn’t have a partnership for its commercial vehicle segment. Mitsubishi’s Fuso division is 89% owned by Daimler, while UD Trucks (formerly Nissan Diesel) has been a Volvo subsidiary since 2007.

Isuzu now has to look elsewhere to fund its next-generation development costs. According to Isuzu President Masanori Katayama, “We will look outside the auto industry and consider information technology companies as well.”  With demand for diesel engines slowing in key markets, the automaker plans to start R&D in autonomous driving and electrification technology to keep pace with consumer trends, if and when it finds a new partner.

Despite this setback, all is not lost for Isuzu. The company still has the highly profitable DMAX joint venture with General Motors, which gave us the Duramax engine and the prolific D-Max platform shared by the Chevy Colorado and the GMC Canyon.