Toyota set to lose top spot to VW

BMW agree to subsidize dealer losses. The world’s largest automaker, Toyota Motor Corp, managed to fend off the Volkswagen Group in...


BMW agree to subsidize dealer losses.

The world’s largest automaker, Toyota Motor Corp, managed to fend off the Volkswagen Group in 2014 and retain its crown, but things are looking bleak for the Japanese giant in China and the upstart from Wolfsburg may become the undisputed world heavyweight champ as early as this year.

In fact, Toyota is predicting its global deliveries will decline in the year ahead by about 1% to 10.15 million vehicles, which is only slightly above what its German rival shipped last year. On top of this, VW is rapidly adding production capacity and is set to open a new factory with an annual manufacturing capacity of 300,000 cars in Changsha this year.

On the other hand, Toyota is in the middle of a self-imposed moratorium on new factories in China, which is still the world’s largest car market where it is predicted there will be sales of up to 24 million cars this year. Toyota President Akio Toyoda’s strategy of foregoing new car plants and concentrating on profit may seem like a sensible and fiscally responsible thing to do; but in the world of automakers, being number one is important and the Boss of the world’s number one automaker may soon find he is in second place as his policies result in the first shakeup in auto-sales leadership since 2011.

In contrast, VW expects to raise its China plant capacity to more than 4 million vehicles by 2018 from 3.1 million at end-2013, according to the company. Mainland China and Hong Kong accounted for a record 3.67 million deliveries by the VW group last year, up 12.4% and extending the country’s lead as the German manufacturer’s largest single market.

Toyota ranks sixth among global automakers in China and sells less than one-third as many vehicles as its two main competitors in China. But things seem to be going from not so good to worse as Toyota is feeling the squeeze of the economic slowdown in China. Due to the rapid growth in China, the number of brands and dealers expanded were at a similar breakneck pace as that of the economy. Now that there is a slowdown, the previously contented dealer networks are feeling the pinch.

The influential China Automobile Dealers Association has recently reported that as many as 10% of dealers for one of Toyota’s China ventures could abandon the brand. Among the 523 distributors in the FAW-Toyota Motor Sales Co. group, 95% are losing money, with some dealers stopping sales or shutting down altogether because of the losses, the state-backed dealer’s group said.

This is not the only group that is facing the pinch though. BMW has agreed to shell out US$821 million to help dealers cover their losses after many of the 440 BMW dealers failed to meet their sales targets and thus failed to qualify for year-end bonuses; the dealers stopped ordering cars in what could almost be viewed as a strike by them.

Slowing sales growth means a ‘new normal’ is emerging in the country’s auto market, BMW said in an e-mailed statement. The carmaker and dealer group “reached consensus on the structure of optimized business measures and financial allocation for the dealers,” according to the e-mail.

It seems that BMW is being pragmatic and value a harmonious relationship with their dealers to ensure long-term rewards, and it is likely that BMW will be long-term winners as the economy prospers and buyers aspire to ever more luxurious products. Meanwhile, the automakers at the more budget end of the market may well be squeezed, particularly if the cap on new car registrations is adopted by more cities across China.

image: autoexpress.co.uk

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