Can BMW Help Toyota Find Its Halo Car?

Toyota and BMW have come together to work on future auto technology, and more importantly sports cars…

Feb 23, 2014 at 3:01PM

Toyota Motors (NYSE:TM) is upping the ante for the ultimate halo car with its recent tie-up with German heavyweight BMW (NASDAQOTH:BAMXF). A halo car is a brand's figurehead; in simple terms, a car that people dream of possessing. The idea is to lure customers into showrooms to peek into these cars, and make them buy other models. It's like dreaming of a BMW M3 while opting for a standard 3 series.

You may ask, wasn't the Prius Toyota's halo car, or even the exclusive Scion FR-S for that sake? These two are close, but not quite there. Although the launch of FT-1 concept car in January set the market abuzz with speculations, it's the BMW partnership that may usher a whole new era in sports cars for Toyota. Let's delve into the pact and the prospects.

Japanese manufacturing meets German engineering
A self-proclaimed BMW fan, Toyota's CEO and president Akio Toyoda makes no bones about his admiration for BMW's cars. Referring to Germany's Nürburgring sports complex, which is regarded as the world's toughest course, where automakers test their new models, Toyoda had said, "There is always a car that passes me. It is a BMW."

BMW M3, Source: BMW

Toyota and BMW entered into a partnership in 2012 for fuel-cell technology, electric powertrains, and lithium-ion battery study, and have been deepening their relationship ever since. In January 2014, the two made it clear that they will collaborate on building two sports cars for each one's stable.

And it makes perfect sense, too. Toyota is a master of manufacturing, and BMW excels in engineering. The two are looking to go beyond anything that has been made till now and build a green sports car with a possible hybrid engine. They have already agreed upon the basic design and the cars may be ready by 2017.

An ideal setting
The U.S. is the perfect market for Toyota's and BMW's dream car as it's the world's largest luxury car market with highest number of individuals with high net worth. Whether it's the premium luxury carmakers like BMW and Daimler AG or mass producers' luxury models like the Chevy Camaro, they derive a good part of their sales from the U.S. Sales of sporty cars in the U.S., excluding the hatch backs, stood at 398,048 units in 2013.

The U.S. auto industry is currently on a roll with a 7.6% rise in 2013. The economy would see its second five-year-expansion streak after World War II, if 2014 witnesses gain in sales volume. This bodes well for both Toyota and BMW as both companies have a strategic base in the country. North America accounted for 29% of the Japanese automaker's worldwide sales in the April-December 2013 period. The German giant, too, has a loyal base of its own and sold 375,782 cars in the U.S. in 2013, accounting for 22% of its global sales.

A win-win situation
The current pact would aid the two to accomplish both collective and individual goals. BMW has made massive investments in technology which the company feels could squeeze profit margins in the fourth quarter of 2013. Although in the third quarter 2013, profit was up 3.1% to 1.32 billion euros, the second quarter saw profit go down 8.8% to 2.07 billion euros. The deal with Toyota would help BMW share some of its investment burden.

The pact would help Toyota transform its boring and conservative image into that of a cool carmaker's. The hybrid Prius, once a style statement, has become too popular. The auto player's hybrid sales topped 6 million last December, of which 4.2 million units possessed the Prius nameplate. Moreover, Toyota's chief isn't quite happy with Prius' present looks, and wants a "heart-racing" face-lift. Both these factors go against Prius' halo car status. A halo car has limited availability and thus the pride factor -- if a Mustang Boss 302 is owned by every fifth person in your state -- is lost. In addition, halo cars don't struggle with their looks, period.

Toyota's rival Ford (NYSE:F) found its mojo in Mustang a long time back -- it's been the company's figurehead for nearly 50 years now. Americans often regard the Detroit player as the company that makes F-150 trucks and Mustangs -- such is its appeal. Last year the company sold 77,186 Mustangs in the U.S., and the launch of the 2015 model has generated much excitement.

Toyota FT-1, Source: Toyota

Toyota's last sports car was the Supra, which the company made from 1978 to 2002. The car attained iconic status, and is still remembered fondly by many Americans, who feel Toyota should revive it. The FT-1 concept car, till its launch in January, was speculated to be the revived Supra. Although inspired by the previous sports car offerings of Toyota, FT-1 is in a space of its own, and its production plans are not yet clear.

Fingers crossed
Toyota is testing new waters, but not without a safety jacket. There couldn't have been a better partner than BMW for a sports car. The duo's pact has generated a lot of enthusiasm, and whether the two will usher in a new era in sports cars or tow the conventional line, will become clear in the next three years. If the car hits the right track, Toyota will be able to fill in the empty space in its fleet, and BMW will once again prove its commitment to innovation.

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ICRA Online has no position in any stocks mentioned. The Motley Fool recommends BMW and Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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