Toyota tightens its grip in south-east Asia
Toyota is undoubtedly a successful car company. Profits and share are climbing and the company appears to be geared to producing the right products for regional markets. In the countries of south-east Asia Toyota enjoys a strong market share position that will be reinforced by key model renewals and an upcoming corporate reorganisation. Tony Pugliese reports.
Toyota strengthens market share globally
Toyota Motor Corporation, it seems, can barely put a foot wrong these days. Despite the recent strength of the yen, its cars and trucks have been devouring market share in virtually all of the world's regional markets. Its sales in the US continue to break new records, with first-half 2004 volumes exceeding 1m units for this first time. In Western Europe, its sales exceeded 336,000 units in the first five months of the year - also its best ever performance.
Furthermore, market growth has hardly come at the expense of earnings - so far, the company has managed to avoid the worst of the incentive wars in North America and Europe. In the last fiscal year, ending in March 2004, TMC became the first Japanese company ever to generate net profits of in excess of Y1trn.
In Japan, the company's performance has been a bit more mixed however. Sales of Toyota-branded vehicles declined to 737,000 units in the first five months of the year, compared with 744,000 a year earlier. This was entirely due to a sharp drop in truck sales due to cyclical factors. Car sales managed to outperform, though only by a small margin. Daihatsu Motor and Hino Motors - TMC's consolidated subsidiaries - nevertheless reported strong sales growth during this period, enough to more than offset Toyota's weak truck sector performance.
35% of south-east Asian market
Outside Japan, Toyota's strength in Asia lies mostly in south-east Asia and here too it has been gaining market share. Toyota and its Hino and Daihatsu subsidiaries now control over 36% of sales in the five largest markets in the south-east Asian region - Thailand, Indonesia, Malaysia, Philippines and Taiwan - helped by the strengthening ties between companies within the group and also by recent new model activity. In the first five months of the year, combined sales in these markets amounted to almost 303,000 vehicles, equivalent to 36% of overall sales compared with 33.6% a year earlier.
With TMC preparing in September to replace its two best-selling south-east Asian models - the Indonesian-made Kijang and the Thai-made one-ton pick-up truck - its dominance in this region is set to increase further.
Toyota group vehicle sales and market share in south-east Asia, Jan-May 2004
|Country||Toyota||Daihatsu||Hino||TMC Total||Total market||Jan-May 2004||Jan-May 2003|
|* includes perodua sales. Sources: industry sources.|
TMC is in the middle of reorganizing its operations in the region, now that it controls most of the equity of all of its main manufacturing companies here. At the end of 2003, it took over the manufacturing operations of PT Toyota Astra Motor and set up a new 95%-owned subsidiary called PT Toyota Motor Manufacturing Indonesia. Daihatsu has also taken over the majority of the equity in its Astra Daihatsu Motor assembly plant in Indonesia and in its Perodua joint venture - the number two national car manufacturer in Malaysia.
In addition to the corporate restructuring, Toyota has made significant progress in the last twelve months in advancing its product complementation strategy in the region. Production duplication between Indonesia and Thailand has been eliminated entirely. CBU imports are now flowing ion both directions, though admittedly mostly from Thailand towards Indonesia at the moment. Malaysia has decided to delay AFTA implementation, so its regional strategy will be delayed further. Toyota's strategy in the Philippines remains unclear however. This is a left-hand drive market and a parallel assembly strategy may remain be more appropriate, with additional synergies developed with Taiwan and Indochina.
In November of last year, Toyota ceased production of the Corolla in Indonesia and son after began importing the slightly revised model from Thailand as a CBU. After prolonging the production run of the Soluna due to orders from taxi firms, assembly ceased last December, to be replaced by imports of the replacement model - the Vios - from Thailand. The last passenger car to be assembled at the Karawang plant in Indonesia was the Camry, in April 2004. Since then, the company has been preparing the plant for production of the new Kijang and test production finally got underway in July.
Collaboration with Daihatsu is paying off
In perhaps what is the best example to date of profitable overseas collaboration between Toyota and its subsidiary Daihatsu since TMC took over its long-standing affiliate in 1998, the two companies launched a joint compact utility vehicle in Indonesia in January of this year. The vehicle looks like a smaller version of the current Kijang utility vehicle and was developed jointly by Daihatsu and Toyota's R&D teams in Japan.
The Toyota Avanza and the Daihatsu Xenia are based on a common, purposely designed platform and differ only marginally in appearance - mostly in the area of interior trim. The Avanza is fitted with Toyota's 1.3L engine, which is also used in the Daihatsu Xenia. Daihatsu also offers a somewhat underpowered version, fitted with its own 1.0L engine. Both models are built at Astra Daihatsu Motor's assembly plant in Sunter, in north-eastern Jakarta, on the same lines as other Daihatsu models such as the Taruna (Terios), Ceria and Zebra minibus and pickup.
The popularity of the new compact utility vehicles took both Toyota and Daihatsu by surprise, and ADM has been adding new equipment and staff at its plant to help speed up the production line. Annualised production in July was 116,000 units (9,700 vehicles assembled during the month) and this will rise to over 120,000 in August (over 10,000 units expected to be assembled in August). A second shift was added at the plant in May and both shifts currently operate two hours overtime, so that the plant operates 20 hours per day, five days per week.
The new vehicles have helped TMC's combined market share in Indonesia rise from 36.4% in the first five months of last year to 43% this year. Shortly after the launch of the vehicles, there was a nine-month waiting list and dealers were charging premiums ranging between Rp5-7m (US$600-800) for queue jumping. Some early buyers were also selling on these vehicles at a profit.
Key to the success of these models is their keen pricing - at between Rp70-98m (US$7,800-10,8000). The car itself is reasonably attractive and easily accommodates an average Indonesian family of seven. With the Avanza and Xenia, TMC has created an entirely new market sub-segment - that of an affordable and attractive family vehicle.
New compact utility vehicle segment established
Mr Joko Trisanyoto, head of marketing at PT Toyota Astra Motor - Toyota's local distributor, says the vehicle has successfully won over buyers of Daihatsu Zebra and Suzuki Carry minibuses as expected, and also buyers of sub-compact and mini-cars which are also in this price range. Furthermore, he added that customer feedback revealed that a significant proportion of buyers were considering buying a used car and that many were first time buyers.
Toyota Astra Motor had sold almost 20,000 Avanzas in Indonesia (wholesale) by the end of June, and Daihatsu just under 10,000 Xenias. A total of around 70,000 units are expected to be sold by the end of the year and a further 10,000 are likely to be sold overseas.
Astra Daihatsu Motor's head of assembly, Mr Andreas Handoyo, reckons that with additional equipment and staff, a further production increase of 20% could be squeezed out of the plant should it be needed. At present, just over half of the plant's production is of Avanza and Xenia models, but this proportion is likely to increase to reflect demand. Nevertheless, Mr Handoyo reckons that the Xenia is bringing more people into its dealers and that this is helping to boost demand for other models as well.
In May, Toyota began shipping the Avanza model to Thailand at a rate of 800 units per month. Although the Indonesian team still awaits firms sales results from the models first export market, we understand that its market acceptance has been good. The export models are fitted with Toyota's variable valve timing intelligence engine, or vvt-i, catalytic converter, automatic transmission and ABS, to reflect the more stringent emissions regulations in Thailand an the market's more discerning market requirements. CKD exports to Malaysia are due to start in September and Toyota Motor Philippines has also requested the vehicle be sold in to that market too.
New IMV models set for launch in September
Separately, TMC has been focusing on developing replacements for the Thai-made Hilux pickup range and the Kijang utility vehicle in Indonesia. This time round, Toyota is basing both ranges on a re-engineered Hilux platform, which for the Kijang will represent a significant step forward in terms of product quality. Test production has already begun at the Karawang plant, 70km east of Jakarta, and the new vehicle is expected to be launched at the Jakarta Motor Show in September. The new Hilux range will also be unveiled in Thailand in September.
Toyota Avanza being assembled at the Astra Daihatsu Motor assembly line in Sunter
Called the Innovative International Multipurpose Vehicle, or IMV, these converged model programmes will allow Toyota to increase economies of scale dramatically in the region. With Toyota also planning to use Thailand as the main global production base for its one-ton pickups, up to 300,000 vehicles per year will be made in south-east Asia based on the new Hilux platform. These will be powered by two main engines, a new 2.0L petrol engine assembled in Indonesia and a 2.5L diesel engine assembled in Thailand.
As a result, economies of scale will rise to western levels in a region renowned for small markets and fragmented production. In Thailand, the new Hilux programme is expected to raise overall Toyota vehicle production to around 350,000 units in 2005, of which around 200,000 will be pick up trucks, from a projected 260,000 vehicles in 2004 and 207,512 in 2003. Toyota is not the first company to consolidate global pick-up truck production in Thailand, however. Ford-Mazda, Mitsubishi and Isuzu have already done so.
In Indonesia, the Kijang replacement will have more refined, car-like ride quality, a more advanced Indonesian-made 2L petrol engine (instead of the current 1.8L unit) and the Thai 2.5L diesel. Along with improvements in the quality of components from suppliers, the next generation Kijang is expected to represent a major improvement in quality. So much so that PT Toyota Motor Manufacturing Indonesia refers to the replacement programme as the Global Quality (GQ) programme, to reflect a major shift towards international product standards. According to the company, the improvements in quality have been made throughout the vehicle and in the manufacturing process itself.
TMC has invested US$130m in refurbishing the Karawang plant, which ceased production of the Camry in April and of the Corolla and Soluna late last year. The Sunter plant will mostly be dedicated to engine assembly, both for export and domestic use, with a combined assembly capacity of 180,000 units per year. The plant will also continue to make the current Kijang pickup truck, which is smaller, cheaper and strictly used as a general purpose, local workhorse. The Hilux is also available, imported from Thailand, but it is more of a niche-purpose vehicle in this market.
The new Kijang will also be assembled in Malaysia, Philippines, Vietnam and South Africa and exported to some of the smaller markets in the region. It is unclear whether it will be made available in Thailand, given that Thailand will have the Sportsrider - an SUV model based on the same platform. But acceptance of the Avanza should help its cause. Toyota's Indian company clearly wants to bring in the new model, but is also conscious of the cost.
Last year, around 110,000 Kijang models were assembled, including almost 75,000 in Indonesia and 35,000 overseas. Around 10,000 of these were pickup models, smaller and less refined than the Thai-made Hilux models.
Toyota is cautious about the prospects for the new model in Indonesia. Mr Trisanyoto, the director of marketing at Toyota Astra Motor, admits that with quality improvements, new engines and additional equipment, it will be difficult to keep the new vehicle in the current Kijang price segment. The segment is also coming under pressure at the lower end from the new compact utility vehicle sub-segment that the company itself has created with the Avanza model, and at the top end with the growing Availability of SUVs such as the Nissan X-trail.
But the company's head of marketing believes that there is still a distinct market segment for the Kijang, at least for the new generation model due out next month. He believes that domestic sales are likely to remain in the current 60,000-70,000-unit range annually, but that volumes are unlikely to grow in line with the overall vehicle market. Its competitors in this segment, such as Isuzu with its Panther model and Mitsubishi with the Kuda, are likely to find the going much tougher though.
Beyond the current generation, Indonesian market requirements are likely to have progressed further towards convergence with international standards. Provided that quality standards can be improved satisfactorily, the Kijang could become more of a global product.