As Toyota announced it has regained the global sales crown, it makes me think of how the Japanese OEM has wasted its chances in the world's fourth largest market. Not everyone is aware that Toyota opened its first factory outside of Japan within Brazil in 1959, a plant that is currently used to produce parts. For decades, the Brazilian market was closed to imports and Toyota only produced a version of its Land Cruiser. It was a great product for rural areas, but Toyota was far behind its competitors. In 1993, for example, Volkswagen was the market leader with a 35.3% share, while Toyota had 0.2% of the market.
Times changed only in 1998, when Toyota built another factory and started production of the Corolla. In the following year, its market share was 1.37%. Until now, the Corolla is Toyota's main product in Brazil, selling more than Honda's Civic. Toyota's second main product in Brazil is the Hilux pick-up truck, imported from Argentina and somewhat equivalent to the Tacoma. In 2010, Toyota had 2.9% of the Brazilian market, one percentage point less than Honda.
Toyota knew that it needed an entry-level product to grow in Brazil, so last year a third plant was inaugurated to produce the Etios, a vehicle initially designed for India. The Etios was launched in October and Brazilians clearly did not like it. While Toyota sold 1,947 units of the hatchback, Hyundai sold 7,080 units of the HB20, a hatchback launched in the same month and also produced in a brand new factory. The difference is that Hyundai developed the car for Brazil, instead of adapting it from another emerging market. Polk forecasts that the HB20 will keep the Etios trailing in sales during the coming years.
Price is the main challenge that Toyota faces for growth in Brazil. The Corolla is priced between 60,200 and 74,420 Brazilian reais (equivalent to US$ 29,600 and US$ 36,600). It isn't rare to hear people reference the Corolla as a luxury vehicle and it is the most armored vehicle in Brazil. The Prius was launched this month at 120,830 Brazilian reais (US$ 59,300). Would you pay Lexus prices for a Toyota?
It is true that vehicles in Brazil have a lot of taxes, but it is also true that OEMs make a lot of money there. According to the Central Bank, OEMs sent profits back to their headquarters totalling US$ 2.44 billion last year. The bank does not break the amount down by company, but the automotive industry is only behind the beverage industry (US$ 2.49 billion). Japan received US$ 320 million, compared to US$ 1.08 to the United States.
Toyota is always seen as a lesson to follow, but in the case of Brazil, Toyota shows what not to do:
- Do not treat Brazil as another emerging market: the auto industry is mature there. Ford was the first one to start producing in Brazil in 1919;
- Changing image is not an easy task: Toyota is perceived as an expensive and high quality brand. This may keep budget buyers away from the dealer network, so do a lot of consumer research;
- Dealer network is important: Toyota has 12 points of sale in São Paulo, Brazil's largest city, while Chevrolet has 22.
Posted by Augusto Amorim, Lead Analyst – South America Forecasting, Polk (01.29.2013)