Toyota Lays Groundwork to Buttress European Sales

KOLIN, Czech Republic July 6, 2005; The Asahi Shimbun reported that Toyota Motor Corp., in efforts to strengthen its position in Europe, is betting on a push from the eastern flank.

In the Czech Republic, the automaker began full-scale production in June at a joint venture factory with France's PSA Peugeot Citroen.

The company also held a groundbreaking ceremony in mid-June for the first Japanese-owned car factory in Russia.

Much is at stake in Europe for Japan's top automaker.

In 2004, Toyota's market share in western Europe was a modest 5 percent, according to the European Automobile Manufacturers Association.

The figure compares with 44.5 percent in Japan and 12.2 percent in North America.

But there is little room for growth in the saturated Japanese market, and Toyota must tread carefully in the politically sensitive U.S. market.

As a result, raising its profile in Europe is becoming crucial to Toyota's aim to surpass global leader General Motors Corp.

Toyota, which sold 916,000 passenger cars in western Europe in 2004, aims to expand sales to 1.2 million by 2010.

The Aygo small passenger car, produced at the Czech factory, is an indispensable model in the company's long-term European strategy.

Fuel-efficient small vehicles are a key segment in Europe because of generally tight environmental regulations.

Further, low-cost cars are in strong demand in eastern European markets.

The Aygo, powered by a 1-liter gasoline engine or a 1.4-liter diesel engine, starts from about 1 million yen.

It is smaller than Toyota's popular Yaris-winner of the 2000 European Car of the Year award-assembled in France.

Toyota, which built its French and British plants on its own, has allied with Peugeot Citroen to price its new products more competitively.

The French automaker, whose two brands together held 14 percent of the western European market in 2004, commands greater leverage over local parts suppliers than Toyota.

Also, the combined annual output of 300,000 units at the joint venture factory should provide greater economies of scale, particularly in purchasing.

The plant is building three models based on a single platform and common engines-100,000 units to be branded Aygo, Peugeot 107 and Citroen C1.

The Aygo competes with an array of products from established local automakers, from France's Renault SA to Germany's Volkswagen AG.

Its rivals also include two sister models, which feature distinctively different designs.

At a plant-opening ceremony on May 31, Peugeot Citroen Chief Executive Officer Jean-Martin Folz said cooperation with Toyota ends in the production phase.

Once the cars roll off assembly lines, Folz said, market competition will be the rule of the game.

The Russian plant, meanwhile, is scheduled to begin production of the Camry midsize sedan in December 2007.

The 15 billion-yen factory, to be located in St. Petersburg, will have an annual production capacity of 50,000 vehicles.

Toyota plans to raise production to 200,000 units, depending on demand.

After the groundbreaking ceremony on June 14, Toyota Chairman Hiroshi Okuda told reporters that the company may add other models and also export some of the output to Europe.

On the sales front, Toyota is focusing on the five largest European markets-Germany, Britain, Italy, France and Spain-to achieve its 2010 sales target of 1.2 million units.

The five countries account for nearly 80 percent of auto sales in western Europe.

In 2004, Toyota's market share was a scant 3.9 percent in Germany and France, and an even smaller 3.4 percent in Spain.

Italy, however, is proving to be a role model for the company's European operations.

Norio Kitamura, who became president of Toyota Motor Italia SpA in 1996, suspended contracts with half of the company's 94 dealerships and recruited more motivated retailers.

He raised Toyota's market share to 5.5 percent in 2004, up from less than 1 percent in 1995.

Toyota has also made progress across Europe.

The average annual sales per dealership almost doubled to about 280 units in 2004, from about 150 in 1998.

Greater sales per dealership mean more profits for retailers and generally higher morale for sales staff.

Even in Germany and France, some established dealerships handling rival vehicles have told Toyota that they want to switch to the automaker, Toyota officials said.(