Already Japan's top carmaker, Toyota's recent purchase of a stake in Subaru-maker Fuji Heavy Industries from GM has given a boost to its ascent towards the top global rank.
Asked at an auto conference here whether Toyota would consider buying foreign automakers, Watanabe responded: "The possibility is not zero, if you ask me about possibility alone."
Toyota had wider aims than just dethroning GM, including further localisation of production, procurement and employment, he said in a carefully worded speech to the 2005 Tokyo International Automotive Conference.
"As a result of our efforts, we might become the largest automaker. But it is not our goal per se. It would only be a result of our efforts to produce the world's best cars," Watanabe said.
Toyota's rivalry with GM is a sensitive issue given renewed grumbles in the United States about the success of Japanese automakers at a time when US competitors are struggling to adapt to an environment of high gasoline prices.
Japanese carmakers suffered intense criticism in the early 1980s from the US auto industry, which accused them of enjoying an unfair advantage from a weak yen that made it easier for automakers here to offer competitive export prices.
More recently, Japanese automakers have been so successful in North America, particularly with their hybrid designs, that some have set prices higher to give a chance to US automakers and preempt a political backlash.
Watanabe said the global auto industry as a whole has further room to grow as only 30 percent of the world's population currently use vehicles, with the rest of the 70 percent yet to benefit from motorization.
He said further advancement of ecological and information technologies would push automakers to produce better vehicles more quickly and at less cost.
Hybrid technology held a key as a realistic step toward building ecological vehicles, he said, adding that Toyota aimed to achieve one million unit sales of hybrid vehicles in 2010.
Japanese automakers along with their international rivals will be showing off their latest models at this year's Tokyo Motor Show which gets underway on Wednesday and opens to the public on Saturday.
Toyota will showcase a concept model with fuel-cell and hybrid technologies as well as the luxury Lexus brand, which it introduced in Japan this summer - about a decade and a half after launching it in North America.