Honda Ties Up With General Motors

TOKYO -- Honda Motor Co. said Tuesday it will supply engines to General Motors and may cooperate further with the U.S. giant in a deal that helps fill some technology holes but does not infringe on its independence.

Honda said it would supply GM with low emission gasoline engines and buy diesel engines from Isuzu Motors, a GM group company.

Other areas of cooperation, including technology development, recycling and parts procurement would be explored.

Honda president Hiroyuki Yoshino insisted, however, that there would be no exchange of equity and that his company would remain independent.

"Honda is firmly committed to an independent path. This relationship will strengthen our ability to maintain this course," he said at a news conference.

He added that the deal had been prompted by GM's request for Honda's engines and not the other way around.

Analysts said they were taking Honda's declaration of independence at face value and did not expect the blue-chip carmaker to become either an integral part of the GM team or the U.S. automaker's aggressive expansionary plans in Asia.

"It's essentially not much more than an agreement to supply engines. It is not as though Honda has decided to become part of the GM group or that they really need each other," said Masato Ogasawara, an analyst at the Daiwa Institute of Research.

The stock market showed little reaction to the deal, with Honda shares closing up 30 yen (29 cents) or 0.70 percent at 3,890 ($38.07).

This spring the shares rose to a record 5,880, but they later eased in part on worries that the strong yen would translate into lower earnings from its U.S. operations.

GM in the past two years has entered into or strengthened equity ties with three second-tier Japanese automakers, including a $1.4 billion purchase of a 20 percent stake in Subaru maker Fuji Heavy Industries announced less than two weeks ago.

It also has a 15-year-old car assembly joint venture with Japanese auto giant Toyota Motor Corp. in California and has made a proposal to buy South Korea's ailing Daewoo Motors.

Unlike Renault SA's purchase of a controlling minority stake in debt-burdened Nissan Motor Co., financially stable Honda is not seen as needing f at least not yet f to slide under another's umbrella.

But in an industry under intense pressure to produce cheaper and cleaner cars, Honda's tie-up with GM will tidy up some of its weaker areas, such as diesel engines.

Others include the development of fuel cells f a cleaner form of power widely seen as replacing combustion engines in the decades ahead.

"They are letting somebody else in the heavy lifting and they are tagging along in the hope that there is something else that they can use," Stephen Usher, analyst at Jardine Fleming Securities, said.

For GM, which unlike Ford Motor Co. is seen as more willing to do deals that do not necessarily involve full control of a company or even a capital alliance, the deal helps fill holes in its technology lineup.

Through Subaru, General Motors has gained greater access to more four-wheel drive and fuel efficient automatic transmission technology while through minivehicle Suzuki Motor Corp. it has garnered new small car technology and access to developing economies in Asia.