Small should have been beautiful; how Toyota misread China market

Mon Oct 29, 2012 4:38am EDT
 
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By Norihiko Shirouzu

BEIJING (Reuters) - Toyota Motor Corp (7203.T: Quote) blames its China underperformance on the widespread anti-Japan protests triggered by a territorial row. Some company insiders and dealers, though, say the world's biggest car maker misread the world's largest market.

They say Toyota's launch of the Yaris subcompact in 2008, aimed at building brand loyalty and driving the Japanese firm to China sales of 1 million vehicles a year, failed to register with its target market - China's army of price-conscious buyers.

The Yaris, a success elsewhere, also failed to attract China's new emerging middle class. To some dealers and those within the company, the Yaris lacked what the Chinese call 'daqi' or 'road presence'. Next to Nissan Motor Co Ltd's 7201.T pricier Tiida, for example, it feels cramped and lacks pizzaz.

Crucially, for more frugal first-time buyers, the Yaris was over-priced, costing from 87,000 yuan ($13,900), 55 percent more than General Motor's (GM.N: Quote) Chevy Sail, and putting Toyota at a competitive disadvantage in a must-win market.

"The Yaris is too expensive, way too sleek for its target market. This group of consumers is very, very price sensitive," said an operator of a few dozen Toyota dealerships across China.

Sales of the Yaris in China averaged just 1,250 a month, according to January-August data, and that's before the impact of the often violent protests against Japanese products in a row over disputed islands in the East China Sea. By contrast, Nissan sold 12,000 of its Tiida subcompacts per month and GM shifted 17,000 Chevy Sails.

BLACK EYE

The misstep in China is a black eye for Toyota CEO Akio Toyoda, the founding-family scion who used to run the firm's China operations, and who also has had to deal with a major recall and last year's Japan quake and tsunami that paralysed parts production.   Continued...

 
The Toyota logo is seen at a dealership of Japan's Toyota Motor Corp in Brussels October 10, 2012. REUTERS/Francois Lenoir