Isuzu Motors — Company History

The Hino separation that created an eighty-year rival

Isuzu's origins run back to two engineering firms that moved into car manufacturing between the end of the Meiji era and the Taisho years. Tokyo Ishikawajima Shipbuilding (東京石川島造船所, established 1889) began studying car manufacture in 1916, tied up with Wolseley Motors of Britain in 1918, and in 1920 built a new car plant at Tomikawacho in Fukagawa ward, where it assembled and then manufactured the Wolseley A9 saloon; in 1922 it completed the first car that could be called domestically built, even though the raw stock was still imported. Passenger-car manufacture was judged premature and was halted before long, after which the emphasis moved to lorries and sales volumes grew, and in 1927 the Wolseley contract was dissolved amicably. The other parent, Tokyo Gas and Electric Industry (東京瓦斯電気工業, established 1910), also took up car manufacture from 1916 and built military goods vehicles. Ishikawajima Shipbuilding spun its automotive division out in 1929 as Ishikawajima Jidosha Seisakusho, and in 1933 merged it with DAT Jidosha Seizo to form Jidosha Kogyo.

In April 1937, under the direction of the Ministry of Commerce and Industry and the Army, the automotive division of Tokyo Gas and Electric Industry and DAT Jidosha Seizo were brought together and Tokyo Jidosha Kogyo was founded. Its predecessor Ishikawajima Shipbuilding carried an accumulation of diesel-engine expertise, and the Diesel Engine Research Committee set up in 1934 became the technical foundation for domestically built diesel commercial vehicles. In 1938 the company opened a new plant at Kawasaki and began volume production of lorries above eleven tonnes gross vehicle weight; in 1941 it renamed itself Diesel Jidosha Kogyo (ヂーゼル自動車工業) and strengthened munitions production on a nationwide scale. At the Army's request it built a dedicated tank factory at Hino in Tokyo — but the parent company answered to the Ministry of Commerce and Industry while the Hino works came under direct Army control, and that divided jurisdiction bred serious friction inside the organisation.

In 1942 the Hino works was separated off as Hino Heavy Industries, and during the post-war dissolution of the zaibatsu Isuzu was required to sell in full the Hino shares it had inherited. The two companies that wartime rationalisation had bound together thus parted ways, and Isuzu had itself created the competitor that would contest the same ground — domestically built diesel commercial vehicles. After the war it resumed production, announcing the TX80 petrol lorry in 1946 and putting in place a nationwide network of seventeen franchised distributors. In May 1949 Diesel Jidosha Kogyo listed on the Tokyo Stock Exchange, and in July of the same year it changed its name to Isuzu Motors, starting again on the plant and the body of engineers that the wartime state-directed merger had accumulated. In 1955 it described its own management policy in these terms: ours is a company whose motto is soundness. We labour day and night at the rationalisation no one sees, but we do not go in for expansion on a grand scale (Diamond special issue, 20 Nov 1955) — a cautious line, conscious of competing with Hino, that became the keynote of its management.

The Elf's success and the side effects of investing in passenger cars

With the post-war conversion to civilian demand, Isuzu resumed the development and volume production of diesel commercial vehicles in 1947, and in 1953 signed a technical tie-up with the Rootes Group of Britain to begin knock-down production of the Hillman Minx, a medium saloon, at Kawasaki in Kanagawa. By 1957 the Hillman had been fully localised, carrying the passenger-car business forward from imported technology to volume production of its own. The Elf light lorry, launched in 1959, became the definitive Japanese light diesel commercial vehicle and took a dominant position in parcel delivery and in the working fleets of smaller firms; in 1961 the Bellel diesel saloon followed. In 1962 the company opened the Fujisawa plant in Kanagawa, at 345,000 tsubo one of the largest sites in the country, and put a volume production system in place. In 1966 it established Isuzu Motors Co. (Thailand) near Bangkok and began local assembly, building on the distribution network Mitsubishi Corporation had put in place there ahead of it.

In the second half of the 1960s Toyota and Nissan pressed hard with passenger cars, and Isuzu's investment in a passenger-car business of its own had the opposite of the intended effect: it delayed the build-out of the commercial-vehicle distribution network and the strengthening of the products. Its share of the domestic lorry market fell from the 30 per cent range in the early 1960s to below 25 per cent by the end of the decade, and in 1969 the lorry business fell into loss on a parent-company basis. As the 1970s opened, with the American big three moving into Japan and capital liberalisation approaching, the trade press ran headlines predicting a capital realignment — Toyota? Nissan? Ford? (Shukan Toyo Keizai, 17 Jan 1970) — alongside reports that Ford and Toyo Kogyo move towards a capital tie-up (Nihon Keizai Shimbun, 11 Jan 1970). The ground under Isuzu's position as a commercial-vehicle specialist was shifting, and by the time the GM talks moved into earnest in 1971 its management had concluded that an outside alliance was indispensable, in capital and in technology alike.

Why Isuzu could take a 34 per cent stake and still say its name would not disappear

In November 1970 the Nikkei recorded that, following Chrysler with Mitsubishi Heavy Industries and Ford with Toyo Kogyo, if the Isuzu tie-up is settled this time, all three of the world's largest car companies will have come into Japan ahead of liberalisation (Nihon Keizai Shimbun, 1 Nov 1970). GM was said to be demanding a 30 per cent stake, and the Yomiuri ran the headline Can a takeover be prevented? (Yomiuri Shimbun, 11 Nov 1970). President Aramaki Torao (荒牧寅雄) announced to employees and to public opinion where he would hold the line: in the forty-three years since I joined, I have yielded to no one in my love for Isuzu. For the sake of the future of 13,000 employees and 220 associated companies, we will not do a tie-up of a kind that makes the Isuzu name disappear. GM too has said plainly that it will not take us over (Yomiuri Shimbun, 15 Nov 1970).

In September 1971 GM paid in for 260 million new shares at ¥78 each through a third-party allotment, acquiring 34.2 per cent of Isuzu's issued shares and becoming its largest shareholder (日本企業要覧, 1975 edition). Because GM had held to a doctrine of wholly owned subsidiaries in its overseas expansion, keeping its stake in Isuzu to a minority was an exception (Nikkei Business, 10 Jun 1974). Isuzu became a member of the GM family alongside Opel in West Germany, Vauxhall in Britain and Holden in Australia, and an international division of labour took shape in which its core lorries rode GM's worldwide sales network without competing with its sister companies. GM's aim lay in securing the production base Isuzu had already built in the promising markets of South-East Asia, and because lorries stayed out of the others' way, Isuzu kept its name and its independence.

The benefits of the alliance showed first in lorry exports. In 1974, its third year, one-tonne light lorries shipped to the United States over GM's worldwide network caught the surge in demand for fuel economy after the oil shock; without the exports through the GM channel the company would have fallen into loss (Nikkei Business, 10 Jun 1974). In 1974 Isuzu launched the Gemini small saloon as the Japanese version of GM's T-car world strategy model, making it, with the 117 Coupé launched in 1968, the flagship of the passenger-car division. In September of that year it brought in Honda's CVCC technology as its answer to emissions regulation, and in November 1972 it had set up Nihon GM Allison (日本GMアリソン) with GM, Kawasaki Heavy Industries and Itochu to enter automatic transmissions for commercial vehicles. Managing director Sano Kenjiro (佐野謙次郎) summed the alliance up: the merit of the tie-up with GM comes down to this — the obvious things can now be done without resistance (Nikkei Business, 10 Jun 1974).

The miscalculation that turned a 200,000-unit R-car plan into a year of nightmares

In 1982 Isuzu resolved to put a total of $281.1M (¥70bn) to $401.5M (¥100bn) into the R-car, a strategic saloon to be exported to the United States at a rate of 200,000 units a year. The Nikkei of the day recorded that it was a plan that stretches the company considerably, carrying as it does investment reaching ¥80bn to ¥100bn, and that as President Okamoto Toshio puts it, in the forty-nine years since I joined, this is the hardest time — this is quite literally a decision with the company's fate staked on it (Nihon Keizai Shimbun, 28 Apr 1982). But the restraint on passenger-car exports to America was not lifted after the promised three years; it was extended, and of the ceiling of 1.85 million units for the 1984 fiscal year, Toyota, Nissan and Honda took roughly 80 per cent between them. The quota allotted to Isuzu was exactly one per cent of the whole (Nikkei Business, 23 Jul 1984). Isuzu, which had staked what little money it had on the 200,000-unit export plan, saw its strength deteriorate rapidly, and for President Tobiyama, the year that should have been commemorative had fallen away into a year of nightmares (Nikkei Business, 23 Jul 1984).

In the domestic passenger-car market the oligopoly of Toyota, Nissan and Honda tightened, and the Gemini and the Aska languished without ever establishing a presence of their own. After consecutive losses in 1993 and 1994, management decided at the end of 1993 to withdraw entirely from domestic passenger-car production, and production stopped in 1996. Nikkei Business had set out the picture ten years earlier: would it be going too far to conclude that Isuzu's tragedy lies in its tie-up with the giant that is GM?; at the point it took on the R-car plan, the possibility that the export restraint would be extended must have been there. If it overestimated GM's political power in America and thought that even MITI could be moved, that was hasty; the constitution of dependence on GM has by now permeated every corner of Isuzu's management (Nikkei Business, 23 Jul 1984) — and that same picture became reality in the second half of the 1990s. The decision to withdraw came late, and most of the lost decade was consumed by the losses of the passenger-car division.

GM's exit, Toyota's stake, and the answer they left behind: commercial vehicles only

Around 2000 GM itself was struggling with deteriorating earnings in North America and with pension liabilities, and its influence over the companies in its Japanese capital orbit declined. In 2002 Isuzu issued preferred shares on a scale of $1.1B (¥144bn), accepting a rescue injection of capital from Itochu, Mitsubishi Corporation, the Development Bank of Japan and others. Passenger-car-derived products for the North American market — the Axiom and the Trooper among them — went out of production one after another, and the small-saloon platform strategy pursued under GM came to an end. The centre of gravity of the business moved to lorries above eleven tonnes gross vehicle weight and in the six-to-eleven-tonne class at home and abroad, to pickups exported to South-East Asia from a Thai base, and to industrial diesel engines. The constitution of dependence on GM that Nikkei Business had identified in 1984 was undone by GM's declining influence and by Isuzu's concentration on its core business.

In April 2006 GM sold its entire holding of Isuzu shares to Mitsubishi Corporation, Itochu and Mizuho Corporate Bank, dissolving a capital relationship of long standing. In its place Toyota acquired about 5.9 per cent of the shares, and a business tie-up began that included the joint development of diesel engines. From then on Isuzu set its standing as a commercial-vehicle specialist at the core of its strategy and formed four pillars: holding the domestic market for lorries above eleven tonnes gross vehicle weight, expanding the North American medium-duty commercial-vehicle business by stages, strengthening pickup production and exports in South-East Asia from a Thai base, and deepening industrial diesel engines. The product range was simpler than in the years when it carried a passenger-car business, but in exchange the company re-centred its management on deepening diesel technology and stabilising earnings through long-term dealings with commercial-vehicle customers.

The end of the Toyota tie-up, and deepening Asia around Thailand

From 2006 through the first half of the 2010s Isuzu deepened a strategy of concentrating its management resources on the single business domain of commercial vehicles. In Thailand it expanded the capacity of its two existing main plants in successive stages and positioned them as the core base for pickup exports across Asia and the Pacific. In Indonesia, the Philippines, Vietnam and India it built up the structures of its local subsidiaries and extended their sales networks. At home it launched new versions of the Elf, the Forward and the Giga in quick succession to hold its market share, while industrial diesel engines accumulated OEM supply to makers of construction machinery and generators and stabilised earnings. A distinctive earnings structure resting on the two legs of commercial vehicles and engines took hold.

In 2016 Isuzu dissolved its capital and business tie-up with Toyota, keeping the substance of their co-operation in commercial vehicles while strengthening the independence of its own management. Even after the dissolution, individual joint projects continued on a stand-alone footing — development co-operation on Toyota's Sora fuel-cell bus, and the joint development of the Erga FCV, a next-generation fuel-cell route bus. A management line pursuing two directions at once — distinctiveness as a commercial-vehicle specialist, and flexible co-operation with the large car makers — became settled practice. That it took forty-five years for a company which in the 1971 GM alliance had dreamt of expanding into passenger cars to dissolve a capital tie-up with Toyota in 2016 and return to independent management is the result of specialisation in commercial vehicles having come full circle and been recognised. Operating profit peaked at $1.6B (¥177bn) in the year to March 2019 and, supported by the domestic recovery and by firm commercial-vehicle demand in Thailand and North America, held steady thereafter.

The ¥250bn purchase of UD Trucks that rewrote the picture with Hino

In October 2020 Isuzu signed a share transfer agreement with the Volvo Group of Sweden, agreeing to acquire all the shares of UD Trucks Corporation, a Volvo subsidiary, for $2.3B (¥250bn). It was an acquisition that answered a managerial question more than half a century old — the structure in which, ever since the Hino separation of 1942, Hino Motors had held first place as a fated rival in the domestic market for lorries above eleven tonnes gross vehicle weight. Even after passing to Volvo in 2007, UD Trucks had kept the technical assets built up in its Nissan Diesel years and its customer base in the above-eleven-tonne commercial-vehicle market, and so carried strategic value in lifting Isuzu's share of that same domestic class. In contrast to the past in which it had handed over 34 per cent in the 1971 GM alliance, in the Volvo alliance Isuzu was the party paying consideration and taking the assets in — its position the reverse of the passive capital tie-up of half a century earlier.

After the integration was completed in April 2021, Isuzu and UD Trucks began to realise synergies in earnest across production, sales and development, unifying domestic sales functions and making after-sales networks common. In August 2023 Hino Motors, in the wake of falsified emissions data, entered merger talks with Toyota's Mitsubishi Fuso Truck and Bus, and a new competitive picture emerged of two large blocs — Isuzu with Volvo and UD, and Hino with Mitsubishi Fuso. Eighty years after the Hino separation of 1942, Isuzu had used M&A to rewrite the competitive relationship with a rival in its own industry, and its place as one corner of a global commercial-vehicle bloc was settled internationally as well. In contrast to the constitution of dependence on GM that Nikkei Business had worried about in 1984, the Volvo alliance was framed to take in the scale merits of the commercial-vehicle business while keeping independence of capital and of brand.