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Toyota and Japanese under attack in Europe as Koreans close in

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Toyota and Japanese under attack in Europe as Koreans close in

Toyota is on the retreat in Europe as well as America, as its reputation for writing the book on quality was trashed by the recall debacle.

But the noise surrounding the global recall of 9.4 million Toyotas and upmarket Lexus vehicles has drowned out a deeper and wider malaise which started way before the unintended acceleration crisis hit last year, and which also involves most Japanese companies operating in Europe. Their market share has been declining for some time and the South Koreans are taking it.

Hyundai and its sister company Kia of Korea are using the old Japanese play book against the originators of the master plan. First, grab the public's attention with rugged and affordable vehicles. Don't worry that the styling is dull; beggars won't be choosers. Offer scarcely believable guarantees and a level of service which makes customers think they've been mistaken for Lord Snooty. Then after you've established a foothold in the market, top it all off by designing cars which look so good, buyers can't stop themselves from falling in love with them.

Actually, the Koreans have added one important ingredient which Toyota, for all its success, never managed. Hyundai and its sister company Kia are producing a series of cars which have that magical quality which induces passion in the heart of the car buyer. The upcoming new Kia Sportage for example is an SUV which will turn heads. The Volkswagen Golf sized Kia Ceed looks great. The similar sized Hyundai i30 won't have the neighbors wondering if this car might be a cheap and cheerful Korean. They might think the handsome Hyundai ix35 SUV is German.

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According to statistics from pan-European newsletter Automotive Industry Data the Koreans have been winning the market share war in Europe now for more than three years. And Toyota was in big trouble way before the hybrid Prius allegedly ran out of control.

Drifted down

Toyota's market share in Western Europe has drifted down steadily to 4.1 percent in the first six months of 2010 from 5.5 percent in 2007, while Hyundai and Kia's joint share has expanded to 4.1 percent from 3.3 percent over the same period. Honda and Mazda have also moved in the same downward direction as Toyota, from 1.9 percent to 1.4 percent, and 1.5 to 1.4 percent for Mazda. The Japanese as a whole have moved down two full percentage points from 14.3 percent to 12.3 percent, according to AID. In the U.S., Toyota's market share has not shown a similar pattern. It increased steadily from 14.2 percent in 2007 to 14.9 percent in 2009, before sliding to 13.2 percent in the first half of 2010 after the negative news stories, according to AID.

Nissan though has not followed this trend, increasing its market share in Europe to 2.8 percent in the first half of 2010 from 2.0 percent in 2007, mainly on the back of the phenomenally successful Qashqai. The Qashqai, a compact crossover, isn't sold in the U.S.

"Toyota's European market share peaked in 2006/2007 and has slipped ever since. Exactly the same goes for Honda. Mazda's share has also slipped since 2006 when it hit 1.7 percent," said AID editor Peter Schmidt.

According to Schmidt, the reasons behind the fall don't bode well for Toyota in particular or the Japanese in general.

Nationalism

"In late 2008/2009, particularly in Germany, Toyota and the Japanese were hit particularly hard as the recession gripped because this was really a form of nationalism, as the German public turned against all Japanese brands," Schmidt said.

Germany is the biggest market in Western Europe, accounting for about 25 percent of all sales.

"The attraction of Japanese cars started to weaken, not only because Germans wanted to buy German, but because European manufacturers had improved their image, and also the quality of their cars had improved too. The biggest gainer was Volkswagen, which had made a really big effort for three to five years to improve product quality," Schmidt said.

VW and its mass market brands Skoda and SEAT and the Audi premium subsidiary is Europe's market leader with a share of around 20 percent.

"The Japanese are very frightened of what Hyundai and Kia are doing. Compare the quality of the products of a few years ago. They used to be well below the norm. They've made huge positive strides in quality and perceived worth. Kia was the first to offer a seven year warranty when some Europeans were offering just one year. Now you see Toyota giving five years. Not just Toyota, but Honda and Mazda have started to lose market share because of this aggressive attack from Hyundai and Kia," Schmidt said.

Toyota has been licking its wounds and preparing a fight back, and it knows that this time, it won't be enough to just offer cars which are simply high quality and reliable. That is not enough to differentiate one car from another. Toyota's new cars must stand out from the pack, in a way that its current European range of worthy but dull cars like the Aygo, Yaris, Auris, and Avensis don't.

More passion please

"How we get more passion into our cars is the challenge for the next few years," said Didier Leroy, president, Toyota Motor Europe.

"We want to attract these types of buyers but without taking away from what our existing customers love about our cars," Leroy said.

Leroy was speaking at a luncheon meeting in London.

In the past, Toyota has made a stab at producing some nifty little roadsters and sports cars like the MR2, Celica and Supra.

"We showed the (Toyota) FT-86 (a sporty coupe) at last year's Tokyo Motor Show which many people see as the new Celica or Supra and we will build that model. While everyone today wants a green car, they would also like a red devil in the garage for the weekends," Leroy said.

Leroy is the first European to head Toyota's operations in Europe. He took up his job late last month. Toyota Europe recalled 1.7 million cars as part of the massive, global recall, and has launched a $26.3 million pan-European TV, newspaper and internet media campaign featuring employees talking about their commitment to quality and safety. Toyota is anxious to avoid the kind of fallout which destroyed Audi's sales in the U.S. after its own unintended acceleration debacle in the early 1980s.

Toyota needs to radically alter its brand image, according to Leroy, without undermining its long-held reputation for cast-iron reliability.

"Toyota and Lexus have well-defined characteristics but they tend to be in the delivery of engineering, quality and safety but nothing that people can actually see. We are looking for something that sets our brand apart -- makes them instantly recognisable as a Toyota or a Lexus without seeing a badge," Leroy said.

Lexus has not been a success in Europe, notching up a barely measurable amount of sales, in sharp contrast to its performance in the U.S. Lexus European market share was 0.3 percent in 2007, and slid to 0.1 percent in the first half of 2010, according to AID. Lexus market share in the U.S. has been relatively steady over that period at close to two percent.

Fight back

Despite his negative data, AID's Schmidt still thinks Toyota will rally, eventually.

"This fight back will cost Toyota dearly. Toyota used to be a money printing machine, the most successful mass car manufacturer ever. This fight back to regain pride and image is going to cost them money. Toyota never used to give discounts. Now it's all different. Now it's going to have give longer warranties which will cost money. There will have to be additional checking, and more rigorous standards for components. And Toyota needs to sharpen up its act to make its future cars more attractive. It doesn't cost any more to design a good looking car than a dull one."

"Toyota is going to be a much more aggressive and much more effective car manufacturer in two or three years from now. I can see Toyota turning into the most efficient car manufacturer on the globe and because of pride, their ability, their humiliation, at the end of the day who buys a Toyota will probably get the best Toyota ever built in terms of value for money, reliability and customer service," Schmidt said.

While Toyota seeks to survive and thrive, the resulting turmoil amongst competing manufacturers looks likely to provide a special time for car buyers. Europeans, Japanese and Koreans will be outbidding each other to offer us the most stylish, safe, and reliable cars at ever keener prices. That's the theory anyway.

From The Detroit News: http://www.detnews.com/article/20100726/OPINION03/7260375/1148/auto01/Toyota-and-Japanese-under-attack-in-Europe-as-Koreans-close-in#ixzz0unczp8uq

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