Toyota's Latest Plan for World Domination

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Think maybe Akio Toyoda reads the Fool?

In all seriousness, I doubt Toyota's (NYSE: TM  ) CEO needed me to tell him that his company needs to up its game in the world's biggest growth markets. But it's clear that he has gotten the message: On Wednesday, the company presented a plan that outlines a comprehensive new strategy for increasing sales in emerging markets.

That's a good thing. Because it's pretty obvious that the current approach isn't working.

Same story, different month
February was a great month for Toyota in the U.S., with sales up a whopping 42% thanks to a rising economy, an improved lending situation, and an aggressive marketing and sales campaign that the company rolled out early in the month. While it wasn't enough to push the company past Ford (NYSE: F  ) or General Motors (NYSE: GM  ) in the sales standings, it was a solid improvement over a decent January.

The story elsewhere? Not so good, particularly in what is arguably the world's most important auto market at the moment. Toyota's sales in China fell 2.8% in what was essentially a flat market in February, even as GM posted a 5.8% increase and Ford -- which trails Toyota and is playing catch-up after years of neglecting the Middle Kingdom -- saw an 11% gain.

This isn't good for Toyota's long-term prospects. The company's biggest global rivals, GM and Volkswagen, have leading positions in hot growth markets like China because they moved early on to develop and sell cars and trucks tailored to the needs of emerging markets. Toyota, on the other hand, has been pushing (bigger, more expensive) models developed for the very different U.S. and Japanese markets, and struggling to find buyers.

But that's about to change.

A new plan for world domination
The new plan is called Toyota Global Vision, and as you'd expect from the name, it lays out Akio Toyoda's global vision for the company over the next decade. Emerging markets are key to that vision, and one key to Toyota's emerging-markets efforts will be the Etios, a new car first launched in India in December. The Etios, a simple, fuel-efficient, small sedan that sells for around $10,000, is the first Toyota designed specifically for the Indian market -- and it has been a huge success, with a months-long waiting list leading Toyota to increase production in January.

Toyota plans to follow up the Etios sedan with a hatchback version, due in April, and is preparing versions of the Etios for sale in China, Thailand, and Brazil. Will it succeed? It certainly has a decent chance. Despite the damage the brand has taken in the U.S., Toyota still has a worldwide reputation for reliability and durability, attributes that have given the company substantial street cred in India and elsewhere.

One key for Toyota will be to preserve pricing power by avoiding the temptation to play at the very bottom of the market. That's a low-margin space best left to lowest-cost producers like India's own Tata Motors (NYSE: TTM  ) . But I suspect that, if anything, Toyota will err on the side of being too cautious.

A more subdued approach
In fact, caution may be a Toyota hallmark for the time being. The company's new plan forgoes aggressive growth targets in developed markets -- once a Toyota staple -- in favor of the emerging-markets focus, as well as an expected emphasis on green technology.

In fact, at a press briefing Wednesday, Akio Toyoda told reporters that the company will not seek to expand its manufacturing capacity in the U.S. any further until at least 2015, and will set targets for margins and profits that are decidedly less ambitious than those in its previous vision plan, presented in 2007. "We want to build a business that can remain profitable even if there's another Lehman-type shock," he said, echoing statements made in recent months by CEOs at GM and Ford.

Words are cheap, but Toyoda's words Wednesday were the right ones. Can a smarter, humbler Toyota finally find its way to leadership in the developing world? We'll find out.

Interested in reading more about Toyota? Add it to the free, personalized My Watchlist to follow all our Foolish coverage of Toyota's latest plan for world domination.

Fool contributor John Rosevear owns shares of General Motors and Ford. General Motors is a Motley Fool Inside Value pick. Ford is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Ford. You can try these or any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 10, 2011, at 10:38 AM, BasuPattan wrote:

    Nice article!!!

    One comment though success of Etios in Indian market should be measured by number of vehicles delivered (e.g., per month/quarter etc) to the customers and not based on the waiting time which could be easily manipulated.

  • Report this Comment On March 10, 2011, at 1:56 PM, AmolKasbekar wrote:

    "One key for Toyota will be to preserve pricing power by avoiding the temptation to play at the very bottom of the market. That's a low-margin space best left to lowest-cost producers like India's own Tata Motors" is a bad strategy. Its important to keep the lower price tier from being taken over. This is the innovator's dilemma. It has been proven time and again that low priced competitors take the lower end of the market first and then move up the value chain. This is what Toyota/Honda did do Detroit.

  • Report this Comment On March 11, 2011, at 3:26 PM, TMFMarlowe wrote:

    @AmolKasbekar: There are plenty of counter-examples: Consider BMW, or Apple.

    Thanks for reading.

    John Rosevear

  • Report this Comment On March 13, 2011, at 12:48 PM, baldheadeddork wrote:

    Is anyone else hearing echoes from all of Detroit's doomed turnaround plans in the 80's and 90's? The problem isn't our culture or management. We're just not being aggressive enough and the rubes, err, customers will love us for who we were.

    Toyota is at least as delusional as GM, Ford or Chrysler on their worst day. Did Toyoda really say Indian buyers would overlook all of Toyota's recent quality problems? Tata had megatons of nationalistic pride pushing the Nano and sales still tanked because it picked up a reputation for being a lemon. This isn't the 1970's. Toyota isn't going to walk into India and have flowers thrown at its feet because they're finally blessing the Indian market with its presence. Indian middle class consumers are smart, they do a ton of research before buying, and they aren't going to be swayed by products sold on the strength of a brand. If Toyota walks in with the attitude shown in these announcements they will have their ass handed to them.

    The numbers don't work, either. The BRIC countries have explosive growth in sales volume but revenues remain thin. GM sold almost 20% more cars in Asia than in the North America last year, but pre-tax earnings from NA were 2.5 greater. Ford's pretax earnings per unit were nearly ten times greater in NA versus their Asia/Pacific/Africa division.

    Beyond the tone-deafness of this plan, a cheap emerging market car is the last thing Toyota needs. Cutting costs out of manufacturing and development is what got Toyota in trouble in the first place, and making heavy investments in China and India will take resources from fixing their real problems.

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