Toyota Motor Corp said it would enter the growing Japanese minivehicle sector next year through a supply deal with unit Daihatsu Motor Co in a move set to intensify competition in the tough domestic market.

Under the deal announced on Tuesday, Daihatsu would supply three minivehicle models to its parent in stages starting in the fall of 2011. Total sales are expected to be around 60,000 units a year once all three models are on the market, they said.

Minivehicles have engine displacements of up to 660cc and are unique to Japan, making up one-third of new vehicle sales thanks to preferential tax treatment. They are especially popular in rural areas as a second or third family car.

The weight of minivehicles in the market has increased, and there were a growing number of our own customers who were shifting to that segment, Toyota Executive Vice President Yoichiro Ichimaru told a joint news conference.

Our focus will remain on the non-mini segment, but this way we will be able to meet the needs of such customers, he added.

Toyota is the only Japanese car maker that does not currently have a minivehicle brand.

Daihatsu President Koichi Ina said the deal would boost its production volume while bringing even more attention to the minivehicle segment.

Daihatsu and its 51 percent owner, Toyota, cooperate broadly, including sharing manufacturing facilities and vehicle platforms.

The share of minivehicles has declined in the past year as consumers take advantage of government incentives that favor regular cars, but automakers expect the longer-term trend to favor minivehicles.

Toyota's entry into the segment, which Honda Motor Co CEO Takanobu Ito has said could eventually account for half the Japanese market, promises to stiffen competition in the already low-margin business, although analysts said the targeted volume should not pose a major threat to existing players.

Daihatsu's Ina said one of the models to be supplied to Toyota would be a rebadged version of its Move Conte model, another would be based on the Hijet commercial vehicle while the third is undecided.

Daihatsu's shares ended up 3.2 percent on news of the briefing, which came after the market closed. Toyota shares finished down 0.7 percent, in line with the Tokyo market.

DOMESTIC DEAL

Analysts said the move would have a negligible impact on Toyota's bottom line, resulting from global sales of about 7 million vehicles last year.

It's a very domestic deal, and one that is positive mainly for Daihatsu, an analyst at a Western brokerage said, declining to be identified.

In the financial year to March 2010, Daihatsu had the top share of Japan's minivehicle market with 35.1 percent, followed by Suzuki Motor Corp with 32.7 percent. Honda, ranked third with 9.3 percent, has said it aims to beef up its minivehicle operations to stem a sales decline in the shrinking Japanese market.

Daihatsu also supplies three 660cc models to Fuji Heavy Industries Ltd, maker of the Subaru brand and also partly owned by Toyota. Nissan Motor Co sells minivehicles made by Suzuki and Mitsubishi Motors Corp under an original equipment manufacturing (OEM) deal.

Toyota and Daihatsu also said they would discuss further cooperation in Japan using Toyota's environmental technology such as hybrids and electric vehicles, and that specific products and technologies would be decided by the end of 2011.

(Editing by Joseph Radford)

Toyota Japan