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A sign hangs over the Toyota booth at the 89th Geneva International Motor Show on March 5, 2019.

PIERRE ALBOUY/Reuters

Toyota Motor Corp will raise its stake in Subaru Corp to 20 per cent from around 17 per cent, the two Japanese automakers said on Friday, as they leverage their scale to better compete in developing new vehicle technologies.

The investment comes a month after Toyota and another smaller Japanese automaker, Suzuki Motor Corp, said they would take small equity stakes in each other.

Such tie-ups highlight how automakers are scrambling to chase scale, manage costs and boost development required to develop self-driving cars, electric vehicles and new mobility services which are upending the global auto industry.

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“In this once-in-a-century period of profound transformation, by strengthening their bonds and aligning their capabilities, Toyota and Subaru aim ... to make ever-better cars,” Toyota said in a statement.

Japan’s biggest automaker whose annual global vehicle sales are 10 times that of Subaru, said its investment would amount to up to 80 billion yen ($742 million) based on Subaru’s stock market value. The smaller automaker will reciprocate by buying a stake in Toyota of equal value.

Traditional car makers, especially smaller ones such as Subaru and Suzuki, are struggling to meet the fast pace of change in an industry which is shifting to a business model of providing transportation services from simply selling cars to drivers.

Their deepening partnerships with Toyota, which already oversees a vast, closely knit network of group companies that include suppliers, vendors and commercial vehicle makers, has raised speculation that these smaller automakers may be absorbed into the Toyota fabric in the future.

“The plan appears to be to ultimately make Subaru a fully owned subsidiary, to help create a ‘mega Toyota’. This is the first step towards that,” said Takeshi Miyao, managing director of consultancy Carnorama. “It’s all about building scale.”

But Subaru President Tomomi Nakamura was adamant that his company would remain independent for now.

“I can assure you that there was absolutely no talk of Subaru becoming a Toyota subsidiary ... either from our side or theirs,” Subaru President Tomomi Nakamura told reporters after the announcement.

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JOINING FORCES

Car makers around the world are joining forces to slash development and manufacturing costs of new technology. Ford Motor Co and Volkswagen have said they will spend billions of dollars to jointly develop electric and self-driving vehicles.

Friday’s deal cements Subaru’s place in Toyota’s expanding group of Japanese partners, which include Mazda Motor Corp and Yamaha Motor Co.

Rival Nissan Motor Co has an alliance with France’s Renault, although that has been shaken following the ouster of former chairman Carlos Ghosn, and with Mitsubishi Motors Corp.

Honda Motor Co has a tie-up with General Motors .

Subaru, which produces the Outback and Forester SUVs, is known for its horizontally placed boxer engines, along with its EyeSight autonomous driver assist and all-wheel-drive technologies.

The two automakers in June said they planned to jointly develop an electric sport-utility vehicle on a platform produced together, to share costs.

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Toyota seems to be keen on investing in smaller, domestic automakers, rather than forging cross-border tie-ups like some of its rivals.

It has been building its holding in Subaru since first acquiring a 9.5 per cent stake in the company, then called Fuji Heavy Industries, in 2005. Its current 17 per cent stake makes Toyota the biggest shareholder.

Toyota shares ended 0.77 per cent lower on Friday and Subaru fell 0.74 per cent.

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