Last year, Toyota Motor raised eyebrows across North America and Europe when it announced it has set its sights on controlling 15% of the world’s new vehicle sales. The implication is that some companies somewhere would inevitably lose out. Together with its Daihatsu and Hino subsidiaries, Toyota already controls around 11% of global sales and the group continues to chip away at market share in all of the regional markets. The company has deservedly earned itself the reputation of a maker of high quality products and unlike many of its competitors, it rarely needs to resort to discounting to make progress. Tony Pugliese reports on Toyota’s performance in Asia.
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Across most of Asia, Toyota group’s market share is well above the world average. In the last three years, Toyota Motor and its subsidiaries Daihatsu and Hino have strengthened their grip on all markets across South-East Asia and now control a combined 35% of ASEAN new vehicle sales with an estimated 550,000 sales last year. A combination of new product initiatives and regional restructuring will ensure that the group will increase the competitiveness gap with other companies. The group’s market share in Taiwan was close to 30% last year and in Australia it exceeded 20%.
Toyota’s presence in India and China, perhaps the region’s two most promising automotive markets in terms of long-term growth potential, is very limited however. China offers Toyota the best prospects for growth over the next ten years and will go a long way in helping it raise its global market share. Toyota has said it wants group sales to account for 10% of the Chinese market by the end of the decade – somewhere in the region of 1m units – and it is gearing up rapidly for large-scale production.
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Toyota-Daihatsu-Hino control 37% of ASEAN sales
Toyota Motor is by far the dominant vehicle manufacturer in the ASEAN trade block and its grip on the any of the region’s automotive markets shows no sign of relenting. The Toyota brand alone controlled almost a quarter of sales in the region’s four largest markets in the first ten months of 2003, up from just over 20% in 2000. If its Daihatsu and Hino subsidiaries are to be included, a further 12 percentage points of market share would be added. In Indonesia and Malaysia, a total of 150,000 Daihatsu branded vehicles are expected to have been sold in 2003. Combined Toyota-Daihatsu-Hino sales in the ASEAN top four markets are expected to have reached 520,000 units last year – equivalent to almost 37% of the 1.415m unit sales estimated for these markets.
Thailand is the largest and strongest ASEAN market for Toyota. In this protected market, Toyota-branded vehicles accounted for over 35% of sales last year. The Daihatsu brand has yet to return to this market since it was withdrawn at the onset of the Asia financial crisis in 1997. The Toyota Hilux is the second best-selling pick-up truck in the country. The arrival of the Vios compact car at the end of 2002 helped to consolidate Toyota’s dominance of the passenger car market. In fact, the Vios has played a significant part in strengthening Toyota’s sales across the entire region last year, despite fierce competition from rival Honda’s City compact saloon. The launch of the Toyota Wish sub-compact model this year should help consolidate Toyota’s dominance further.
In Malaysia Toyota continues to make ground despite the high taxes on non-national car companies. Here too, the launch of the Vios and looser pricing regulations has helped Toyota compete more effectively with the country’s first national car company, Proton. Perodua, the second national car company – with sales of 105,000 units and a market share of over 28% in the first ten months of 2003, is now under the control of Daihatsu Motor. The Toyota, Perodua and Hino brands now account for around 38% of the Malaysia vehicle market
With vehicle sales in the ASEAN region having recovered to levels last seen before the Asian financial crisis, Toyota is now focusing on rationalising its industrial strategy in the region and developing the long-awaited product-sharing relationships with Daihatsu and Hino. This is expected to widen the competitive gap in the ASEAN between Toyota and other vehicle manufacturers.
Thailand has become the hub of Toyota’s operations in the region. It has by far the strongest network of Toyota suppliers and a decision to establish an R&D centre was also announced by Toyota last year. Global production of one-ton pickup trucks is being consolidated in this country, as is passenger car production for key ASEAN markets. Recent Free Trade Agreements announced by Thailand are also expected to expand compact car demand to markets outside the region.
Indonesia will remain the main mini-van production location for the region, alothugh demand for these outside the region remains limited. Production of the Hilux-based Kijang replacement is due to go into production in the summer at the Karawang plant, east of Jakarta. Indonesia was also chosen for the compact mini-van that went into production at the end of last year at PT Astra-Daihatsu’s plant in East Jakarta. It is being this month across the country under the Daihatsu and Toyota badges.
Overall, Daihatsu is increasingly taking charge of group sub-compact vehicle strategy in the ASEAN, while Hino Motor is taking control of group truck production both regionally and also on a world-scale. While continued protectionism in Malaysia means that Toyota is likely to continue small-scale assembly in this country through its affiliate, it looks likely that the company’s Philippine operations will become increasingly focused on component production for export. In both these countries, Toyota does not own the majority of the equity of its vehicle assembly operations.
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Ambitious targets, high hopes for China
Although Daihatsu has had a presence in China’s mini-vehicle market for many years, it was only in late 2002 that Toyota staked its claim in earnest to the country’s vehicle market and the brand’s share of sales today is minuscule as a result. While Daihatsu is expected to have sold around 120,000 mini-vehicles in 2003 though its joint venture with Tianjin Automobile Industry Corporation (TAIC), the Sichuan Toyota Motor joint venture on the other hand makes around 3-4,000 mid-sized Coaster buses annually.
Japan’s leading auto company nevertheless has outlined very ambitious plans for this market, which is expected to become the company’s best prospect for growth in the current decade and beyond. By 2010, Toyota and is subsidiaries Daihatsu and Hino Motors aim to control around 10% of the Chinese vehicle market, from an estimated 4% in 2003. By this time, the company speculates that overall new vehicle sales could exceed 10m units annually.
Toyota will have its work cut out given the dominance of long-established players such as Volkswagen, the plethora of new vehicle assembly joint ventures sprouting up across the country and plans to develop a sustainable indigenous vehicle industry. In order to achieve these targets, Toyota Motor will need to invest heavily in expanding vehicle, engine and parts production capacity, convince its component suppliers to make substantial investments, and build a nationwide sales network capable of handling these volumes. Nevertheless, if Toyota is to achieve its stated target of controlling 15% of the world’s vehicle market, building a strong presence in China will be indispensable.
Toyota’s decision to partner with First Auto Works (FAW) – one of China’s major industrial groups – could have been a lot worse. Toyota owns 50% of the Tianjin Toyota Motor joint venture, which produced and sold close to 50,000 Vios compact cars last year. The company plans to raise production capacity to 80,000 units in the short-term, and will introduce the Corolla model to its line-up in 2004. The Camry model will inevitably follow once capacity is expanded further. So far, Toyota and FAW have agreed on a far-reaching plan to produce up to 400,000 vehicles in China.
To help it achieve these targets, Toyota is consolidating its currently fragmented sales network into a newly established national sales company, FAW Toyota Motor Sales – with ownership evenly split between itself and FAW. They were planning to have a total of 100 sales outlets in place by the end of 2003 and further expansion of the network will take place on an ongoing basis. Following the relaxation of regulations, Toyota is also planning to establish a car financing joint venture in China and this will also help improve sales prospects. Toyota is also expected to source small cars from the local joint venture of its Daihatsu subsidiary, while Hino Motors is also in the process of establishing vehicle assembly operations in the country.
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Toyota is currently in talks with Guangzhou Automobile Industrial Group for the establishment of a jointly-owned engine plant with an initial capacity to assemble 300,000 units per year from 2005. The plant would make 2.0-3.0L engines, of which around two-thirds would be exported. Eventually, capacity for around 500,000 engines per year would created.
Modest presence in India
India is also a market in which Toyota has yet to commit fully, despite the also significant growth potential of its vehicle market. One of the main factors that detracts from India as a market is that it is extremely price-competitive, with most passenger car sales comprising low-cost sub-compact models. Demand for C-segment cars and larger is limited and this market in its current condition is overcrowded. It is somewhat puzzling, however, that Toyota’s Daihatsu subsidiary has not sought to replicate the success that Hyundai Motor has had in India’s small and mini-vehicle market, which is substantial by global standards. Maruti Udyog, which makes Suzukis, dominates the Indian passenger car market at present.
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Toyota entered the Indian market at the end of 1999 with the establishment of the Toyota Kirloskar Motor subsidiary. It produces the previous generation Kijang utility vehicle, called the Qualis locally, which accounts for almost all of its sales volumes. The Corolla went into production in 2002, but demand for this model remains limited to around 500 units per year. Now that the vehicle market is showing signs of renewed growth, Toyota is looking at ways to increase its exposure to this market. It is expected to produce the Vios at some stage, but a smaller model is clearly needed if sales volumes are to be given a significant boost.
