Toyota Races to Rev Up Production For a Boom in Emerging Markets [WSJ]
By NORIHIKO SHIROUZU
November 13, 2006; Page A1
Toyota Motor Corp., already in a frenzied push to expand its auto output, is stepping up its race to open new factories as part of a confidential blueprint to grab a 15% global market share by 2010 amid an expected surge in car sales in India, China and other emerging markets.
The Japanese auto giant, which recently passed Ford Motor Co. to become the world's No. 2 auto maker by sales and is poised to overtake General Motors Corp. as early as this year, aims to open three more new plants by 2009 as part of a "global master plan," boosting its production capacity by 450,000 vehicles a year.
According to the document, which has circulated among top Toyota executives since earlier this year and was reviewed by The Wall Street Journal, the company expects global auto sales to rise to 73 million vehicles in 2010 from 65 million last year, a five-year growth rate of 12%. The blueprint says the projected surge in sales over the next decade will be driven principally by the so-called BRIC nations -- Brazil, Russia, India and China.
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Toyota isn't alone in expecting a sharp increase in demand. Global Insight, an economic-research and consulting firm, says global auto sales over the next five years will grow 3.2 percentage points faster than in the previous five years, a major shift for the industry after decades of slow growth, especially in the U.S. and Western Europe.
"BRICs are the engine of growth," says Masaki Taketani, a director of CSM Worldwide, an auto-industry research firm in Michigan that also foresees soaring sales. "Companies that rule the auto markets in the BRIC countries will come out as winners in the global auto race," he says.
Toyota's task won't be easy. Most of the developing world's burgeoning demand is for low-cost cars, and much of it, especially in China, is likely to be filled by young, homegrown competitors. These emerging auto producers are making inroads in Africa and the Middle East with models selling for as little as $5,000 and could pose the greatest challenge to Toyota and other auto giants in the low-end market.
What's more, investing heavily in emerging markets carries considerable risk. Brazil, for example, has long been viewed as a potential bonanza, yet its auto market has gone through several booms and busts in past decades. In some years, sharp swings in the country's economy and bouts of political instability caused auto giants with big stakes there to incur heavy losses.
Still, Toyota wants a big chunk of the emerging-market growth. The auto maker plans to build new plants in India, China and the U.S. by as early as 2009 and to increase its group global market share, including Daihatsu Motor Co. and Hino Motors Ltd., to 15% in 2010. Excluding those affiliates, Toyota is aiming for a 14% share that year, with sales of about 10.37 million vehicles, according to its plan. That would be up from 11% and 7.26 million vehicles in 2005.
[Great Expectations]
CSM forecasts auto makers around the world will produce 76.2 million vehicles annually by 2010 and nearly 80 million by 2012, excluding heavy-duty commercial trucks and buses, up from the 62.2 million vehicles in 2005. Mr. Taketani says roughly half of the expected production growth -- between 6.6 million and 8.2 million vehicles -- will come from robust sales in Brazil, Russia, India and China, as rising income levels allow large numbers of consumers to own cars for the first time.
As a result, the race is on to design inexpensive -- but reliable -- cars for those markets. For Western and Japanese auto makers, the ultimate goal is a family car with a price tag of around $7,000 or less. Their benchmark so far is the Dacia Logan, launched in 2004.
The Logan isn't much to look at, but its price tag has made it a surprise hit for France's Renault SA. The car, which starts at $7,300, is popular from Romania to Morocco to Russia, and is grabbing the attention of rivals, including Toyota, DaimlerChrysler AG, GM, Renault partner Nissan Motor Co. and Honda Motor Co.
DaimlerChrysler has said it is in discussions with potential Chinese partners to develop subcompacts for sale under its Dodge brand in the U.S. and elsewhere. Among potential partners is China's Chery Automobile Co. Honda says it is considering developing a highly affordable microminicar for India and possibly other markets.
Many other auto makers are also building plants in Russia, India and China in anticipation of a surge in sales there. Renault last week announced a joint venture in India to produce the Logan, while Volkswagen AG has for years built cars in Brazil. In August, GM said it plans to build a second plant in India and is increasing output at existing plants in Russia. Honda, Nissan and Suzuki Motor Corp. are also expanding their operations in India.
Ford is finishing work on two factories in the eastern Chinese city of Nanjing -- one to make engines, the other to assemble cars. Both are set to begin production next year. The company also has plants in Chongqing in western China and in Thailand. In addition, Ford is considering expanded production in India. "Things have gone global almost overnight," Ford Chairman Bill Ford Jr. said recently in China.
Few auto makers, however, have the resources to match Toyota, which recently reported third-quarter net profit of 405 billion yen ($3.44 billion). GM, Ford and DaimlerChrysler are scrambling to stanch losses in their North American operations, while Renault and Volkswagen are hampered by weak profits on their home turf in Europe.
Toyota is rushing to launch a low-cost, emerging-market car of its own before the end of the decade to catch up with Renault and meet the growing demand for more affordable models. It already has the new Hilux truck and its variants, such as the Innova minivan and the Fortuner sport-utility vehicle, which are built on a single low-cost platform and marketed in 140 emerging-market countries, and the Corolla, a small car sold around the world. But those models aren't cheap enough for many consumers in developing countries.
Toyota salespeople say demand in the fast-growing Chinese market, for instance, is shifting increasingly toward even smaller and less-expensive cars, such as the Chery QQ, which sells for under $5,000.
[Katsuaki Watanabe]
Toyota's president, Katsuaki Watanabe, said earlier this year in Tokyo that his company was exploring whether to develop a low-cost emerging-market car of its own. But senior engineers and executives say Mr. Watanabe already has given the green light to developing what the company calls a "new family compact."
They say the new plant slated to open as early as 2009 in India would likely be the first to produce that car. According to the plan, the Indian plant would have production capacity of 150,000 vehicles a year -- on par with a typical Toyota facility in the U.S. CSM's Mr. Taketani says Toyota is likely to expand production of the car to Brazil and China and possibly Thailand, among other places.
According to Toyota's plan, the company also is gearing up to add a second auto factory capable of producing 100,000 vehicles annually near the southern Chinese city of Guangzhou, where it began producing a Chinese version of the new-generation Camry this year. There, the engineers and executives say Toyota might produce, among other cars, the Yaris, a subcompact hatchback already marketed in the U.S. and Europe. The plan also calls for producing and selling the RAV4 and the Highlander sport-utility vehicle, but it wasn't clear where in China those vehicles might be built.
Among risks to its global business strategy, Toyota is most concerned about rising gasoline prices. The 2010 medium-term plan envisions crude-oil prices remaining between $50 and $70 a barrel. But it also speculates about the possible consequences of $80 a barrel.
Under that scenario, the company believes global demand for autos would amount to about 68 million vehicles in 2010, 6.8% less than its current forecast for that year. It would also cause Toyota's estimated global sales in 2010 to slip to 9.52 million units from the projected 10.37 million, a decline of 850,000 vehicles. |
