Toyota Is Picking Up Speed
A strong quarter and an impressive forecast have brought the spotlight back on Toyota Motors (NYS: TM) . The company is on a roll, and seems to be making all the right moves to get ahead in the race. The latest is its focus on emerging markets to drive growth. It has got some big plans up its sleeves -- ones that seem just right to get back on top.
Driving beyond U.S. shores
An integral part of Toyota's global vision is to derive half of its total sales from emerging markets by mid-decade. The company doesn't seem satisfied with the three million units it is selling annually in these markets currently. To push sales up by another one million by 2015, it is planning eight small cars for these markets, including the Etios that it launched in India in 2010.
Toyota derived 18% of its total unit sales from Asia alone in 2011 -- a region that is set to become a critical market for the company, not just for cars but also for production of auto parts and research and development initiatives. Why is Toyota so keen on the emerging markets?
A strategy to gain lost ground
Once the world's biggest automaker, Toyota was knocked off its perch by General Motors (NYS: GM) last year when the earthquake in Japan played havoc with its production and supply lines. Volkswagen moved up to second position. Problems multiplied when Toyota had to recall thousands of vehicles globally. The company knew it had to toil hard to regain some of the lost glory.
The first quarter was a huge step in that direction for Toyota. It sold more cars than GM, bagging the top automaker slot once again. But maintaining the position won't be a cakewalk, which is why the company wants to strengthen its foothold in some of the fastest-growing markets of the world even while the U.S. car market gathers steam. Not a bad idea, considering the huge potential these markets have.
Bundle of opportunities
China, for instance, is the world's biggest car market. And with the number of billionaires and millionaires rising manifold in the past two years, the story could only get bigger.
The auto industry accounts for a fifth of Brazil's industrial economy, and is currently the third largest in the world. While sales are slowing down a bit, Brazil remains an important car market, and the government will likely take necessary steps to boost auto investments.
India, primarily a small car market, is attracting almost every player in the industry. Currently the sixth biggest car market in the world, India has the potential to climb up to third place by the end of the decade according to a McKinsey report. No wonder then that GM and Ford (NYS: F) are placing so much faith in the nation. From launching models to doubling capacity -- they are doing it all in India. HondaMotor (NYS: HMC) , too, is directing its focus toward compact cars to boost volumes in the nation where it sees limited opportunity for large vehicles. Toyota isn't doing too badly either. It has already begun exporting its compact models like the Etios from its Indian facility. The model has done well in the Indian market, notching sales of 100,000 units within 17 months of its launch.
The Foolish bottom line
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At the time this article was published Neha Chamariadoes not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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