Japan's auto makers focus on key markets
TOKYO - Powered by brisk sales in the United States, Japanese auto makers are now racing to make forays into other parts of the globe, especially four rising economic powerhouses collectively called the BRIC countries - Brazil, Russia, India and China.
Though the US remains by far the world's biggest and most important auto market, Toyota, Honda, Nissan and other Japanese auto giants see the BRIC countries as crucial to their long-term plans for the global marketplace given the four countries' huge growth potential.
For example, Toyota Motor Corp's first Russian assembly plant will open next year, and Nissan Motor plans to begin construction of its first plant there this year. Toyota plans to develop vehicles specifically targeting emerging markets, the first of which will be sold in India around 2010. In collaboration with its subsidiary, Daihatsu Motor, Toyota will also put a new plant in India on stream next year. Suzuki Motor plans to put its second Indian plant in operation by the end of this year. Nissan is likely to join its Japanese rivals in producing vehicles in India in the near future.
In China, Toyota recently began to roll out its first made-in-China Camry. Honda Motor's new plant in China will go on stream late this year. Nissan, for its part, plans to develop low-priced cars specifically targeting the BRIC markets.
A global investment spree
Buoyed by steady sales in overseas markets, Japanese auto makers generally posted stellar performance for fiscal 2005, which ended on March 31. Toyota's profit for the fiscal year totaled 1.37 trillion yen (US$12.3 billion), up 17% from 1.17 trillion yen the previous year, the fourth straight year of record income for booming Toyota. Sales for the year surged 13% to 21 trillion yen from 18.6 trillion yen the previous year. Among other auto makers, Honda, Mazda Motor and Suzuki scored all-time highs in recurring profits.
Japanese auto makers are rushing to expand production abroad amid sluggish sales at home and on the back of profits they earn abroad, especially in their cash-cow market - the US. Three of Japan's five major auto makers posted record-high overseas outputs in fiscal 2005, backed by continuing moves to relocate production overseas. Toyota boosted overseas output 19.3% to 3,731,253 units during fiscal 2005, while Nissan posted a 12.1% rise to 2,073,472, and Honda a 10.7% rise to 2,199,501.
Japan's seven major auto makers plan capital spending totaling more than 3 trillion yen (nearly $30 billion) globally for the first time for the current fiscal year that started in April. All but one of the seven auto makers plan to raise their capital expenditures. Mitsubishi Motors alone plans to cut its capital spending by 11% as it struggles with excess capacity in North America and Australia. Toyota plans to make capital expenditures totaling a little over 1.5 trillion yen, including those made by its subsidiaries, for the current fiscal year, up 20 billion yen from last fiscal year. Honda plans to increase its capital spending by 25% to 570 billion yen and Nissan also plans to boost its capital expenditures by 16% to 550 billion yen.
The Japanese automobile industry association announced recently that the number of vehicles produced abroad by Japanese auto makers, including truck makers, rose 8.2% in 2005 to 10.6 million units. It was the first time that the number had exceeded the 10 million mark. Another milestone is expected this year, when overseas production by Japanese auto makers surpasses their domestic production, which totaled 10.8 million units in 2005.
Toyota plans to boost its group global production to a record high of 9.06 million vehicles this year, putting it on a solid course to overtake General Motors of the US as the world's largest auto maker in terms of production volume this year. Toyota recently set an annual global sales target of a little over 10 million units in 2010, excluding vehicles made by its subsidiaries, Daihatsu and Hino Motors Ltd. This figure will be about 3 million more than it sells globally at present. Toyota seeks a doubling of sales in Asia and a 35% increase in sales in North America. More than 90% of the targeted increase of 3 million vehicles should come from sales in foreign markets.
Honda also expects global annual sales of 4.5 million units or more in 2010. Nissan is targeting global annual sales of 4.2 million units in fiscal 2008.
Though North America remains a cash cow, Japanese auto makers are set to spend more on new facilities in the BRIC countries, which they see as a new frontier that has still to be fully tapped, for the current fiscal year and beyond.
The BRIC countries began to draw particular attention after Goldman Sachs painted a rosy picture of the four economies in a report titled "Dreaming with BRICs: The Path to 2050" in October 2003. The report forecast that Brazil, Russia, India and China would become four of the world's six largest economies in terms of gross domestic product (GDP) by the middle of this century - China, the US, India, Japan, Brazil and Russia in this order.
The report also predicted that the combined GDP of the BRIC economies would surpass that of the US, Japan, Germany, Britain, France and Italy by 2039. China and India, the world's two most populous countries, have enjoyed high-flying economies. According to the latest Asian Development Bank forecast, China's GDP will grow 9.5% this year, while India's will grow 7.6%.
A huge population is becoming wealthy enough to afford cars in the two Asian countries. Russia and Brazil are also becoming key players in the world economy in terms of natural resources under their control. With China's sizzling economy and swelling middle class, the country's auto market grew 30% last year to 5.7 million vehicle sales, according to local-industry figures, just behind Japan's 5.8 million. China is expected to replace Japan as the world's second-biggest auto market this year after the US.
India is also emerging as a major auto market. It is already Asia's third-largest auto market, after Japan and China, and the world's 11th-largest. According to the Indian automobile industry association, auto sales in the country rose 8.2% in fiscal 2005, totaling nearly 1.5 million units.
In China, Toyota, where GM is thriving, recently began to roll out its first made-in-China Camry, the firm's best-selling model in the US. Toyota has so far been behind GM and other makers in the world's fastest-growing market.
The launch of the mid-sized Camry, built in a new factory in Nansha, near the southern city of Guangzhou, underscores the Japanese auto maker's newfound emphasis on the Chinese market. By shifting production to China, where consumers are closer, Toyota hopes to double its annual Camry sales in the local market to 60,000 this year. Guangzhou Toyota Motor Co, Toyota's joint venture with a local firm, also plans to build its second assembly plant near its existing plant, which will go on line in early 2009. The first plant has an annual capacity of about 100,000 units. The second plant is also expected to have a similar capacity.
Toyota aims to sell as many as 1 million vehicles in China in 2010, or a projected 10% of the rapidly growing market. This would be a sharp increase from the 180,000 units, a paltry 3% share of overall auto sales, the company sold there in 2005. GM captured 11% of the local market last year by selling about 665,000 units, followed by Volkswagen AG. Until recently, Toyota cars were viewed by local consumers as pricey imports. But the company's reputation for reliable, fuel-efficient cars is increasingly appealing to economy-conscious Chinese drivers. In the first quarter of this year, Toyota was ranked sixth in sales in China, with 56,231 units. Last year, the company came in 10th place, according to industry figures.
In collaboration with its local partner, FAW Group, Toyota already plans to begin producing 200,000 Corolla cars a year at its third joint-venture plant, in Tianjin, in 2007. To attain its sales target, Toyota now intends to have the new Tianjin plant manufacture more Corolla cars.
Toyota began production of its Prius hybrids in China in December - marking the first time that Toyota had produced hybrids abroad. Toyota plans to begin full-scale production of fuel-efficient cars in China. It plans to start producing Yaris models, known as Vitz in Japan, in Guangzhou and RAV4 sport-utility vehicles in Tianjin in 2008. A total of 130,000 units of the two models will be churned out annually.
Honda's second plant in Guangzhou will also go on stream late this year. Mitsubishi set up a research and development center in Shanghai, its third such center outside Japan. The R&D center began operations recently.
In India, Toyota will build a new plant to produce small cars as early as next year in collaboration with its subsidiary Daihatsu. The pair will build the new plant near an existing factory run by a joint venture between Toyota and an Indian company in Bangalore, southern India. Initial production will be 100,000 cars a year, with investment likely to total more than 10 billion yen.
The move is aimed at expanding Toyota's global strategy beyond North America and Europe to emerging markets that also include Brazil, China and Russia. Toyota also aims to catch up with smaller rival Suzuki in India's fast-growing automobile market by expanding its lineup of small cars. Toyota has a market share of only 5% in India, while India's biggest car manufacturer, Suzuki-controlled Maruti Udyog, holds about 50% in the local market, where small cars account for more than 70% of overall auto sales. Toyota sold 48,000 vehicles last year, the company's record for the country.
Toyota's ambitious expansion of local production is inevitably bringing forth the new task of securing a sufficient number of skilled workers, among other prerequisites, for sustainable growth. In India, Toyota will open a vocational training school within the compound of Toyota Kirloskar Motor, a joint venture between Toyota and the Kirloskar Group, in Bangalore in August next year to foster local engineers. It will be the first such school outside Japan to be run by Toyota.
Suzuki's second four-wheel-vehicle manufacturing plant in India will go on stream by the end of this year in the northern state of Haryana in a suburb of the Delhi metropolitan area. Honda also intends to boost its annual local production capacity from 30,000 vehicles to 50,000 by year-end.
Nissan is likely to join its Japanese rivals in producing vehicles in India some time in the not-too-distant future. "We will make a move in India," Nissan chief executive Carlos Ghosn said recently.
In Russia, where about 1.5 million new autos are sold annually, Toyota began the construction of an assembly plant in St Petersburg last June. The plant, the first in Russia for Toyota, will be operated by Toyota Motor Manufacturing Russia, a subsidiary established in May last year. The plant, which is scheduled to be operational in December 2007, will mainly manufacture Camry vehicles and have an annual production capacity of 50,000 units. Toyota will initially invest 15 billion yen in plant and equipment.
Nissan will join Toyota in Russia production - the company announced recently that it will also build a new plant in St Petersburg, investing 22.6 billion yen. Construction is to begin late this year, and production will begin in 2009. The new plant will have a capacity of up to 50,000 units per year. A variety of vehicles will be produced. Last year, the company sold more than 46,000 vehicles in Russia, up from 28,000 in 2004. Nissan, which set up a sales company in Russia in 2004, plans to nearly double its dealerships in Russia to about 50 during fiscal 2007. "Russia is an important part of our global growth strategy," Ghosn said in unveiling the plans.
Meanwhile, Toyota plans to develop a compact passenger car specifically designed for emerging markets, and plans to start selling it in India around 2010. Nissan will also develop low-priced cars specifically targeting the BRIC markets; production of these models will begin in China and Brazil as early as 2008.
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economics. His e-mail address is [email protected].
Hisane Masaki is WSN Editor Japan.