TOKYO—Toyota and Subaru will work on a second generation of their shared rear-wheel drive sporty coupe and collaborate more closely on other projects under a new agreement that raises Toyota's stake in the smaller Japanese auto maker to 20 percent.
Under the accord Subaru will also take a small token stake in Toyota to help cement their deepening ties.
Toyota already owns a 17 percent share of Subaru, while the smaller partner currently has no stake in Toyota.
The companies said they would collaborate more closely on a wide range of next-generation technologies, including safety and electrification systems.
Toyota President Akio Toyoda said teaming up on technologies such as sports cars and all-wheel-drive vehicles will help the companies keep their cars fun to drive in an age of automated driving.
"During this once-in-a-century period of profound transformation, driving enjoyment will remain an inherent part of automobiles and is something that I think we must continue to strongly preserve," Toyoda said in a Sept. 27 news release.
Among the plans, Toyota will expand its supply of hybrid drivetrain systems to a wider range of Subaru vehicles. It currently supplies the drivetrain for the Subaru Crosstrek Hybrid.
The partners will also expand their development of all-wheel-drive technologies, leaning on Subaru's expertise in that field.
Another joint project they reaffirmed in the cross-shareholding announcement: the development of a next generation of their rebadged sporty small car, the Toyota 86 and Subaru BRZ.
The Toyota alliance with Subaru dates to 2005, and it has expanded recently to include the joint development of an electric-vehicle platform and an upcoming all-electric crossover.
Toyota is by far the larger manufacturer, with 10.6 million cars and trucks produced in 2018. Subaru made 1 million vehicles last year, a 5 percent decline and the first drop in seven years.
Subaru, which produces the Outback and Forester crossovers, is known for its horizontally placed boxer engines, along with its EyeSight autonomous driver assist and all-wheel-drive technologies.
In recent years it has departed from selling cars as high-performance machines, marketing them instead as lifestyle products using an approach that has been successful in the U.S., its biggest market.
Auto makers around the world are joining forces to slash development and manufacturing costs of new technology.
Traditional car companies, especially smaller ones such as Subaru, are struggling to meet the fast pace of change in an industry that is shifting to a business model of providing transportation services from simply selling cars to drivers.
Ford Motor Co. and Volkswagen Group 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.
Toyota seems to be keen on investing in smaller, domestic auto makers, rather than forging cross-border tie-ups like some of its rivals.
Bloomberg and Reuters contributed to this report