Why Is Toyota Turning to Mazda for a New Engine?

2014Mazda2

The 2014 Mazda2

If winning the long game means admitting defeat on minor points, then Toyota (NYSE:TM) seems prepared to maintain its top position in the auto industry for years to come. According to an Automotive News report, the Japanese powerhouse will borrow the Skyactiv engine from Mazda (MAZDF.PK) in the next subcompact car the company produces, which amounts to an acknowledgment of the superiority of the powertrain of the Japanese Mazda2 when compared to Toyota’s existing options.

Reports of the Mazda-Toyota collaboration surfaced earlier in 2014 when the companies announced that Mazda’s plant in Salamanca, Mexico, would churn out a Toyota-branded car in the future. Automotive News reports Mazda will clear enough space in its Salamanca plant to assemble about 50,000 Toyota subcompacts a year, beginning in 2015. That is the equivalent of about one-fifth of the plant’s annual capacity.

Mazda’s winning Skyactiv engines will go into U.S. Mazda2 models for the first time later in 2014 when production begins in the company’s Salamanca plant. Japanese models using the Skyactiv 1.3-liter engine are as well reviewed abroad as the Skyactiv-packing Mazda3 is in the United States. Both cars are considered far superior to the subcompact Toyota Yaris that is set for a full overhaul in the coming year.

Its humdrum status aside, the Toyota Yaris has proven capable of winning customers over simply on the subcompact’s efficiency and Toyota badge. The automaker recently announced it was adding capacity to a factory in Europe where the Yaris and Yaris Hybrid are manufactured. Engaging customers on this side of the Atlantic seems to be a priority in light of the adoption of Skyactiv technology.

Still up in the air is just how much of the next Toyota subcompact will be Mazda and how much will be Toyota. According to Automotive News, Mazda’s CEO of Mexican operations said the stamping, dies, and “some of the interior design work” will be in Toyota’s hands while the remainder is up to Mazda to deliver.

Of course, the biggest aspect of the transaction is the lively 1.3-liter Skyactiv engine that is slated to power the Mazda2 for North American markets later this year. Mazda’s publicity claims its Skyactiv technology represents a major breakthrough in the automotive industry.

At least on some levels, Toyota is acknowledging it can’t do any better. It may not be able to beat Mazda in the subcompact game, but it is happy to write a check and join its smaller rival in deploying Skyactiv engines.

More from Wall St. Cheat Sheet: