May 15, 2017 7:00 am JST

Developing Asia: Toyota's key battleground

Growth in emerging markets could compensate for weakening US sales

YUSUKE YOKOTA, Nikkei staff writer

Toyota's Innova MPV, unveiled in Thailand in September 2016

TOKYO -- Toyota Motor's earnings for the year through March, announced on Wednesday, included some encouraging signs from emerging markets.

The automaker is looking for modest sales growth in Asia for the current fiscal year, while bracing for a continued fall in North America, the market that did most to help global sales pass the 10 million mark three years ago.

The decline in the American market means the company needs sales to pick up in emerging countries to prevent overall profits slowing.

In April, CEO Akio Toyoda spoke at a special Lexus sales promotion event. In an effort to tap into their huge numbers of social media followers, the company made sure to invite several A-list celebrities, including a popular chat show host and famous photographer.

Toyota sold 1.21 million vehicles in China in 2016, up 8% from the previous year. The growth was powered by brisk sales of Lexuses and the upscale Alphard minivan.

But Toyota still lags behind Volkswagen, whose nearly 4 million units sold see it remain top dog in the country.

"We cannot catch up with VW if we try to do what they do," said a senior Toyota executive.

The company desperately needs to find way of accelerating penetration into emerging countries like China, and the event was part of a new strategy. 

North American sales increased by one million during four straight years of expansion through March 2016, topping 2.839 million units.

But the figure dipped in the year that ended in March to 2.837 million vehicles and another year of a marginal decline is expected.

"Our sales [in North America] have been running below year-earlier levels so far this year, indicating a weakening of the market," said Toyota Executive Vice President Osamu Nagata.

Sales in other parts of the developed world are also on the slide, with the first decline in two years expected for both Europe and Japan.

But the company predicts a 1% growth in sales in Asia excluding China to 1.6 million. Its sales figure for the region posted the first rise in four years in the year through March and another year of expansion would be encouraging news.

In Indonesia, sales of the Calya multi-purpose vehicle and the Sienta minivan are on the rise. Toyotas are also selling well in the Philippines.

In the Middle East, sales have been hit hard by lower oil prices, falling roughly 30% to about 490,000 vehicles in the last fiscal year.

While no sales growth is expected in the region for the current fiscal year, there are some grounds for optimism.

In April, the Saudi Arabian government announced it would terminate salary cuts for the public sector and military in response to a rebound in crude prices.

With government employees accounting for a third of the country's workforce, the move has significant economic implications. "We need to be prepared to capitalize on the expected demand recovery," said a senior Toyota executive.

Sales outside major markets, such as in the Middle East, Latin America and Africa are expected to pick up for the first time in four years.

Asia is particularly important for Toyota's bottom line. At around 9%, the company's operating profit margin in the region is much higher than in other key markets.

Sales growth in Asia could do a lot to help cushion the impact of falling numbers in developed countries on the carmaker's profitability.

Commenting on the company's forecast of another year of falling operating profit, Toyoda expressed disappointment at the earnings performance in Wednesday's press conference.

"To use a sports analogy, we lost two games straight," he said. "I hate losing."

To avoid a third in a row, Toyota needs to step outside of its comfort zone and boost its performance in emerging markets.

Toyota Motor Corp.

Japan

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