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.
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