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Toyota stumbling in race for China; automaker...

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Link: http://www.autoweek.com/news.cms?newsId=103038

Toyota stumbling in race for China; automaker betting on fuel-efficient vehicle strategy
JAMES B. TREECE | Automotive News
Posted Date: 8/26/05

Toyota Motor Corp., preparing to pass General Motors as the world's largest automaker, is a juggernaut in North America and Europe.

Not so in China.

Toyota is stumbling there badly, and GM has become the market leader. Meanwhile, upstart Hyundai Motor Co. of Korea is racing ahead of the Japanese giant.

Asked about Hyundai in China, Toyota President Katsuaki Watanabe replies bluntly, "We're getting beat."

Toyota's travails in China show that the Japanese automaker isn't omnipotent. Potentially bad decisions about partners, occasional cultural insensitivity in its marketing and a cautious approach have hurt the company in the world's fastest-growing market.

A look at Toyota's problems in China is a reminder that the company's march to the top of the global auto industry is not inevitable.

Hyundai on the move

In 2004, auto sales at Hyundai Motor and its Kia Motors Corp. affiliate more than doubled that of Toyota in China.

In the first half of 2005, Hyundai sold 152,363 vehicles. Toyota's sales were 48,954. Hyundai ranked third, and Toyota was fifth in China in the first half.

Market leader GM's sales, including minivehicles sold by its SAIC-GM-Wuling Automobile Co. affiliate, were 307,749.

In second place, long-time leader Volkswagen Group's sales were 179,722. Honda Motor Co. was fourth with 117,761 sales.

The difference between Hyundai and Toyota? Hyundai's speed and focus.

Toyota and Hyundai started manufacturing in China at about the same time, with dramatically different results.

In October 2002, Hyundai began renovations on a former truck plant outside Beijing. Two months later, the plant assembled the first Hyundai-brand cars in China. (Kia was building small volumes of cars in China before Hyundai bought control of the then-bankrupt automaker in late 1998.)

In its first full year in business, the Hyundai plant produced 50,000 Sonata sedans, grabbing 2.5 percent of the light-vehicle market.

Adding Tucson

The plant now builds the Elantra and Sonata sedans and is adding the Tucson SUV this year. The plant's capacity will be increased to 300,000 a year by 2007. Hyundai plans a second, 300,000-unit factory by 2008.

Also in October 2002, Toyota began building its first Toyota-badged car in China, the Echo-based Vios. Today, Toyota's manufacturing presence and management attention is spread over five factories.

On the other hand, Hyundai Group, including Kia, has three fewer plants than Toyota but more than twice the sales.

Toyota also chose to split its attention between two partners in China. Having two partners can slow decisions and create rivalries.

The politically connected but bureaucratic First Auto Works Group (FAW) is Toyota's main partner. Guangzhou Automotive Group is its partner in a plant that will build Camrys.

Partnerships are mandatory in China. Foreign carmakers may own no more than 50 percent of a Chinese automaker. But the more successful foreign carmakers have only one partner.

GM, for instance, expanded its lineup from mid-sized sedans to minivans, compacts, subcompacts, minicars, SUVs, and now luxury sedans. In all of those ventures it works exclusively with Shanghai Automotive Industry Corp., or SAIC.

SAIC is more entrepreneurial than FAW and a good fit for GM. For instance, slow-moving FAW made a few tentative inroads in exporting its trucks to developing countries.

But SAIC has moved decisively outside China. It bought 10.6 percent of GM Daewoo Auto & Technology Co.

Grumbling partners

VW builds VW-badged cars with both SAIC and FAW, and Audi-badged cars exclusively with FAW. This has led to problems in joint sourcing, inefficiencies in distribution and grumbling on the part of each Chinese partner that VW favors the other.

Toyota faces a similar headache. "If company A would like to do a Corolla, and so would company B, it would be complicated," says Katsumi Nakamura, CEO of Dongfeng Motor Co., Nissan Motor Co.'s China affiliate.

Hyundai has three partners in China. But all Hyundai-badged passenger vehicles are built at a venture with Beijing Automotive Industry Corp.

Toyota is still expanding in China. It aims to have 10 percent of the market by 2010, up from 3.9 percent in the first half of 2005.

Hyundai already tops that. Its first-half market share was 11.2 percent and wants 20 percent of China by 2010.

To be sure, Toyota has started slowly elsewhere, including the United States and Europe. It could recover from its blunders in China.

"Our industry is always up and down," says Dongfeng's Nakamura. It is "a little too early" to evaluate Toyota's performance in China, he says.

Camry vs. Accord

This year a China-built Camry will take on the popular China-built Honda Accord, which had sales of 105,392 units last year.

Toyota's Watanabe says his company is well-positioned for growth in China. China's air quality is rapidly deteriorating, and the Beijing government is worried about rising oil imports. As a result, Toyota's hybrids and other fuel-efficient cars will be increasingly attractive, he says.

Toyota will begin assembling the Prius hybrid hatchback in China this year.

For now, though, Toyota is playing catch-up.

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the article hardly mentions the cultural hatred the chinese still hold against japan. i think that makes more of a difference than toyotas business decisions there.
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the article hardly mentions the cultural hatred the chinese still hold against japan.  i think that makes more of a difference than toyotas business decisions there.

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I agree, Toyota will never be able to do well until Japan mends its relationship with the citizens of China...
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