The ASEAN region's two leading Japanese car companies, Honda and Toyota, are currently revisiting their respective "Asia Car" strategies for the region. Five years after they were originally launched, the Toyota Soluna and the Honda City have been somewhat disappointing. They entailed significant dedicated engineering efforts and the sales volumes have not been as high as hoped. Tony Pugliese reports.

Both the Soluna and City were developed as a means of countering the rising competition in the region. In the mid-1990s, South Korean car companies were beginning to make inroads into South-East Asia and European manufacturers were being encouraged to return by rapid market growth. The two models were intended to be low-cost mass-market products, targeting the emerging middle-class populations of these developing economies.

The cars themselves are single-spec model lines, powered by 1.5L engines with manual transmission. The platforms were derived from existing C-segment model lines, though re-engineered and simplified to cut costs and adapt them to local road conditions. The suspension systems were made simpler and more robust and equipment levels and accessories reduced to the bare essentials. Regional component sourcing was increased to new heights, making use of trade and manufacturing co-operation between ASEAN member countries to enhance economies of scale.

The Toyota Soluna and Honda City are now expected to end their lifecycles around mid-2003, in both cases after a lifecycle of eight years with only minor restyling during this period. So far, they have failed lived up to their manufacturers' expectations in terms of sales volumes, which explains the unusually long replacement cycles. Cumulatively, the Toyota has sold around 100,000 Soluna models since its 1996 launch and the end of 2000. This is far lower than the original target of 200,000-250,000 units set for the car's lifecycle, a level that would have allowed Toyota to recover its investment and make a profit. Cumulative sales for the Honda City during the same period are even lower, at around 80,000 units.

Segment
Import status
1997
1998
1999
2000
Toyota
j
j
j
j
j
j
Starlet/Echo
B
CBU
1,300
117
185
549
Soluna
Lower C
CKD
27,485
7,915
11,708
22,174
Corolla
Upper C
CKD
35,760
17,023
22,031
27,593
Camry
D
CKD
4,529
2,008
7,454
9,316
Corona
D
CBU
3,947
1,690
966
613
Crown
E
CBU
767
1,026
1,010
1,641
Lexus
D/E
CBU
220
307
549
680
Total Toyota
j
j
74,008
30,086
43,903
62,566
Honda
j
j
j
j
j
j
City
Lower C
CKD
30,750
11,364
14,289
22,983
Civic
Upper C
CKD
37,961
16,188
17,716
18,564
Accord
D
CKD
11,469
5,786
7,366
9,332
Total Honda
j
j
80,180
33,338
39,371
50,879
Total ASEAN market
j
j
617,699
261,552
387,024
509,480
*Excludes SUVs and MPVs
Sources: industry sources

The disappointing volumes are in large part due to the economic crisis that swept across the region from 1997. New passenger car demand in the region fell sharply from mid-1997, and sales volumes are still some way off from returning to pre-crisis levels. Both models have been losing market share in the region in the last few years, and this is unlikely to change until their replacements are launched. Both companies will be banking on more buoyant market conditions for the new generation models.

Toyota halted the regional rollout of the Soluna during the economic crisis, and the car was sold only in Thailand and Singapore until last year. The company began assembling the model in Indonesia in early 2000, mainly because a facility was already in place as the country went into recession. It is still not sold in the Philippines and Malaysia, and unlikely to be launched in these markets in its current form. The Honda City model is available in the ASEAN's top five passenger car markets, though it managed to outsell the Soluna only marginally last year.

Honda City replacement

The Honda City replacement will be based on a small car platform, rather than the Civic platform, to help reduce the market overlap. It will be based on the Fit, the Logo model replacement that was launched in Japan earlier this year. A smaller platform should also help reduce costs, which will allow Honda to fit more equipment in the car. Some re-engineering will take place, the biggest difference being that it will be a booted car rather than a hatchback which do not sell well in the region. The car will be available with a 1.5L engine, the most popular engine size for passenger cars in the region, but will also offer smaller sized engines. Some press reports have speculated that 1.0L models will be made available. In any case, the new model will have significantly less overlap with the Civic than its predecessor.

We can expect the model to be sold in this format across the ASEAN, and also in other markets such as India and China, and possibly South America. In fact, the City replacement will no longer be an Asia Car, but rather a "Developing Markets" car. Ford has been very successful with a similar model in India, the Ikon, which is a re-engineered version of its B-segment Fiesta - also with a boot. Ironically, while Honda (and Toyota) led the way in developing car models with dedicated engineering for the region, it now appears to be following Ford's lead in its regional car development.

With the launch of the model, Honda is likely to start rationalising its ASEAN production base - provided that the ASEAN Free Trade Agreement is implemented on schedule (though without Malaysia's participation). It is likely to be produced alongside the Civic model only in Thailand, the largest market for both these models in the ASEAN. It will be exported from Thailand in CBU form to other markets in the region, as import tariffs fall to 5%. Honda's Thai plant has a production capacity of 75,000 units per year, and produced around 40,000 cars last year, so there is ample capacity available at for the time being.

Indonesia is likely to become the source country for the CR-V, and the Accord model will eventually only be produced in Malaysia, once this country implements AFTA directives - possibly by 2005. Honda has strengthened its equity holdings in manufacturing companies in these countries over the last few years.

wefg Import Status
1997
1998
1999
2000
Indonesia CKD
1,956
232
270
4,635
Malaysia CKD
6,199
1,491
1,485
1,780
Philippines CKD
5,478
2,899
2,443
3,391
Singapore CBU
167
744
697
1,230
Thailand CKD
16,950
5,998
9,394
11,947
Total sg
30,750
11,364
14,289
22,983
Sources: industry sources

Honda has not revealed any sales targets for this model, though on a less committed note its sales manager for Thailand, Mr Pongsak, suggests that it will account for around a third of the company's sales in that market. This is likely to be the target for other markets, including the Philippines and Indonesia. The fact that it will be based on a global platform, with less dedicated engineering than its predecessor, and also the fact that it will be sold in more markets outside the ASEAN, means that it is likely to be more profitable than its predecessor.

Toyota Soluna replacement

Like Honda, Toyota is planning to replace the Soluna with a model based on a small car platform. Toyota's Thailand Executive Vice-President, Mr Ninnart, refused to confirm that the next generation Soluna will be based on the its global B-segment Vitz model, which was launched last year in Japan. The current model is based on the old Tercel platform, which is now over ten years old. Mr Ninnart did confirm that the new Soluna will use a platform smaller than the Corolla, this inevitably to protect the Corolla model line from market erosion. Toyota's options appear to be either to update the current platform; bring in the Vitz platform; or in fact work with its subsidiary Daihatsu on this project.

rg Import Status
1997
1998
1999
2000
Indonesia CKD
0
0
0
9,418
Singapore CBU
168
741
751
1,638
Thailand CKD
27,317
7,174
10,327
11,118
Total qrf
27,485
7,915
11,078
22,174
Sources: industry sources

Like the current model, the new Soluna will primarily use a 1.5L engine, as low running cost is the key strength of this model line. It is unclear whether smaller engine options will be offered, and this may depend ultimately on which platform is used. The new model will be produced in Thailand, which is the biggest ASEAN market for this car, although it remains unclear whether capacity generated in Indonesia will be used also. With import tariffs between ASEAN member states set to fall 5% from the end of 2002, a single regional source for the model is likely.

The Vitz model is, nevertheless, at the forefront of Toyota's current wave of expansion in Asia. Cars based on this model will also be assembled and launched in China in 2002, and Toyota is likely to launch a Vitz-based model in India later on. 

To view related research reports, please follow the links below:-

Automotive regional report: Asia

The world's car manufacturers: A financial and operating review (download)

Honda profiles:-

Honda Motor Co Ltd Company Profile (download)

Honda Corporate Profile

Company Profile of Honda (download)

Toyota profiles:-

Toyota Corporate Profile

Company Profile of Toyota (download)