Toyota and Mazda Get Closer.
Toyota Motor Corporation is a leading global manufacturer of motor vehicles, regularly contending for top spot in the overall volume stakes, and the largest Japanese-owned business in this sector by some margin. It owns majority stakes in compatriots Daihatsu and Hino Motors, and, following General Motors’ disinvestment from Fuji Heavy Industries (Subaru) and Isuzu Motors midway through the first decade of the 21st Century, Toyota moved quickly to take minority shareholding positions in both businesses. In mid-2009, the first reports emerged of a developing relationship with Mazda, and, early in 2013, it was announced that Mazda was to provide a new subcompact car, based on the Mazda2, for Toyota to sell in the North American market from mid-2015. This, together with the ongoing joint venture producing the Subaru BRZ/Toyota 86 sports cars, provided evidence that Toyota was rolling out a strategy of equity participation and co-operation to secure the other remaining Japanese-owned entities within the automotive industry.
Further evidence of this direction emerged early in August when it was announced that Toyota was acquiring a five percent equity stake in Mazda Motor Corporation, which, in turn, would acquire a 0,25% stake in Toyota, and that the two companies were to build a $US 1,6 billion assembly plant in the United States. Other announced co-operation would take place in the areas of electric vehicles, connected technology, advanced safety technology development, and complementary product sharing. The North American plant, which is planned to open in 2021, will have a production capacity of 300 000 vehicles per annum, and employ up to 4 000 people. This venture, which will reportedly build Toyota Corollas and a new Mazda SUV crossover model, has been seen by some observers as a response to President Donald Trump’s vocal posturing on the importance of returning manufacturing activity to the United States, but the general reaction of industry commentators to the Toyota/Mazda arrangement has been positive, particularly in improving the latter manufacturers’ future prospects as the industry moves into an increasingly expensive era of alternative driveline product development.
The importance of this announcement to Mazda should not be underestimated. The company had enjoyed a long-running relationship with the Ford Motor Company, which included the distribution of Ford-badged Mazda products through the American company’s global distribution network, dating back to 1979. During this period, Ford held a stake in Mazda manufacturer Toyo Kogyo which peaked at 33,4% in 1996, but, from 2008 it was progressively scaled down before being completely sold off in September, 2015. This left the highly innovative, but relatively small Japanese manufacturer on its own, and looking for new partnerships. Since then, product-specific co-operative arrangements with the likes of Fiat Chrysler Automobiles (Miata/Fiat 124 Spyder) and Isuzu (pickup trucks) have been established, but observers still felt that Mazda needed a more comprehensive partnership with a major manufacturer to secure the company’s future. The Toyota partnership promises to provide this assurance.
Shortly after the announcement of its strengthened ties to Toyota, Mazda also announced new product strategies including the planned introduction of the world’s first Homogeneous Charge Compression Ignition engine. HCCI engines are fueled by petrol, but utilize sparkless compression ignition within the cylinders in similar fashion to diesel engines, and are able to run on a leaner mixture than conventional petrol power units. Mazda’s new Skyactiv-X engine will be supercharged, and employ spark ignition for cold starting and conditions when the combustion temperature is too low to support full-time HCCI operation. The transition of Mazda’s Spark Controlled Compression Ignition engine technology from spark ignition to compression ignition, is claimed to be seamless, and advantages include increased torque and a 20-30% improvement in efficiency over current petrol engines, equivalent or better efficiency than current diesel engines, and greater operational flexibility. It is rumoured that the Skyactiv-X engine will make its market debut in a redesigned Mazda3 model in 2019.
In our assessment of potential partners for Isuzu’s South African assembly operation, in the wake of General Motors’ planned exit from the local market, we earmarked Mazda in the context of its local sales of imported models and announced intention to utilize Isuzu as the source for future Mazda pickup models. We cannot speculate, at this juncture, if this prospect will be influenced by the announcement of Mazda’s closer global co-operation with Toyota. As mentioned earlier, Toyota now has equity holdings in both Isuzu and Mazda, so it may be possible that the larger company will perceive benefit from local co-operation between its two associates. However, Toyota’s ongoing battle with Ford over leadership in the local “bakkie” market, and Ford’s growing success with Ranger both locally and in other global market areas where 1-ton pickups enjoy strong demand, may cause some rethinking of strategies relative to light commercial vehicles. Consolidating the reputations and product strengths of Mazda, Isuzu and Toyota could be highly beneficial to future generations of a generic Hilux-type platform, and it is notable that the likes of Nissan/Renault/Mercedes-Benz and Mitsubishi/Fiat have embarked on pickup-focused joint ventures. The integration of Mitsubishi into the Renault-Nissan alliance may further consolidate this process, and it could encourage a Toyota-led alliance to consider following a similar path.
To Report or Not.
Readers who followed our series of reports last year on South African vehicle registration data that was entitled “The Other Vehicle Market”, will recall the discussion about certain suppliers refusing to report their fully detailed sales information. We eventually terminated the series when it became clear that the impasse between the National Association of Automobile Manufacturers of South Africa and Mercedes-Benz South Africa over limited reporting did not appear to be nearing resolution. This situation made any accurate reconciliation between vehicle registration and sales data impossible, and removed the means to make any comprehensive or accurate analysis of trends in the South African vehicle market.
Unhappily, we can now report that the situation has since deteriorated even further. Quite understandably, Mercedes-Benz’ two major competitors in the local luxury vehicle market, BMW and Audi, perceived a competitive disadvantage in continuing to report their own detailed sales information to NAAMSA and the Department of Trade and Industry, as there was a distinct possibility that this intelligence would find its way to their rival through some third party channel, and have resorted to a similar system of aggregated total market reporting to that employed by Mercedes-Benz. The latter’s initial decision to withhold detailed reporting, and the perceived sharing of sales data with competitors, was based on concerns from its German parent that this practice could be considered collusive and anti-competitive, following increasing intense scrutiny of business ethics by agencies of the European Union.
We still find it difficult to understand why there should be any objection to the disclosure of fully detailed sales data. Surely, competition between vehicle brands is at its most intense in the showroom, where the sales deals are constructed, and the value of knowing exactly how many of each model and derivative are actually being sold helps to ensure that the most appropriate products are offered in the marketplace. In our view, this would sustain competitiveness, because the information vacuum that has been created by non-reporting may well lead businesses into poor decision making, endangering their survival and associated job security in both the vehicle supply and user industries. NAAMSA says that it is still hopeful of resolving the impasse, and we certainly hope that this will be the case, sooner rather than later.
Some World Trends.
While we are on the subject of market analysis, we have recently read of some interesting trends within the global automotive universe. World vehicle sales totaled 95 million units in 2016, and are expected to reach 101,6 million in three years. The total global vehicle population reached 1,2 billion units last year, and is predicted to grow to 1,5 billion by 2022. Sports Utility Vehicles are gaining ground around the world, and are expected to make up 35% of the world market, and 45% of the US sales total, four years from now. In the United States, “light truck” sales (which include SUV’s, crossovers and pickups) totaled 10,6 million units in 2016, out of a total light vehicle demand of 17,5 million. Globally, SUV’s are undoubtedly gaining ground at the expense of sedan cars.
(Potentially) Interesting Developments in the Truck Market.
One of the more disappointing outcomes of the reporting scenario discussed previously will be our inability to track and fully analyze some interesting new trends that are emerging in the local truck market. Over the past few months we have reported on the local launch of the Volvo Group’s Eicher truck brand, and UD’s new Croner truck range, while early in August, Hino South Africa announced the impending entry into local production of its new 500 Series. All of these new products will compete in the mid-strata of the market, joining other recently launched products including the latest Fuso models from Mercedes-Benz South Africa.
The most interesting aspect of these recent developments will be the increasing importance of trucks from other countries in a category that has, for many years, been dominated by Japanese products. Despite previous efforts by European, Chinese and Indian brands to unseat the likes of Hino, Isuzu, UD (formerly Nissan Diesel) and Mitsubishi Fuso from their control of the cruiserweight truck segments, the market has continued to demand the particular combination of value and quality offered by these manufacturers. However, nothing remains unchanged forever, and the recent decision by Mercedes-Benz South Africa to sell Fuso-branded trucks built at its Indian Bharat Benz operation, and UD’s switch to Thailand as the new source for its own mid-range models, promises to introduce a new dynamic into the cruiserweight classes.
The important point here is that products carrying well-supported “Japanese” nameplates are being sourced from alternative manufacturing bases. This will open up new opportunities in terms of pricing and specification detail for them that are more closely aligned to export market demands. Japanese sourced products have, for some time, not been the cheapest from Asia, and some characteristics demanded by the Japanese domestic market, such as extended “semi-sleeper” cabs and the highest levels of emission controls, are not always appropriate for all export destinations, including South Africa. The decision to switch the manufacturing locations of these Fuso and UD products would not have been taken lightly, and was obviously intended to make them more universally competitive than their Japanese-sourced equivalent models.
Local operators who have historically bought Japanese brands will be encouraged by their traditional suppliers to consider these new products, even if they are not manufactured in Japan. If they make the break, however, will a positive ownership experience make them more likely to consider other Indian, or even Chinese products? This is, of course, the 64 Dollar question, and the outcome is also likely to be of vital interest to the likes of Tata, Eicher, and FAW, who will be looking for increased success in the same area of the market, as well as Hino and Isuzu, who will continue to source their products from Japan. Of course, our ability to draw accurate conclusions from this potentially fascinating dynamic will be severely compromised by the lack of comprehensive sales reporting data, particularly from market Leader Mercedes-Benz SA, whose Fuso products will be a key driver in the probable trend shift, and we will be left to speculate on the actual outcome.
Hino’s new 500 Series will, at launch, feature Euro 3 emissions technology, in view of the continuing unavailability of “clean” diesel fuel from all local outlets. It will also offer improved ride comfort, a new cab design, and consist of five 4x2 FG, four 6x2 FL and three 6x4 FM models. A new engine will reportedly power the 6x4 models, while the 6x2 and 4x2 models will be available with fully automatic transmission options. This range will be produced for both the domestic Japanese and export markets at Hino’s new Koga plant, located 121 km north of Tokyo, and there are no immediate plans to relocate South African product sourcing to Hino’s offshore plants in China, Indonesia or Thailand.
Our Electric Future.
Announcements concerning future bans on fossil-fuel powered vehicles have been coming through thick and fast in recent months. In July, Britain announced that the sale of petrol and diesel cars would end in 2040, following a similar announcement by France, while the mayors of Paris, Madrid, Mexico City and Athens reportedly said that they would exclude diesel vehicles from their city centres by 2025. Volvo also recently announced that all its car models after 2019 would have electric or hybrid powertrains, and virtually every other automaker has revealed plans to phase in electric vehicles, or expand the number of alternative drive models in their ranges.
This trend towards the increasing exclusion of the 20th Century’s dominant vehicle technology reflects growing worldwide concern over the levels of air pollution being experienced, particularly in major cities. In Britain, nitrogen oxide emissions have been blamed for causing respiratory diseases, the government has been under pressure to take steps to reduce air pollution after losing legal cases brought by campaign groups, and, in London, there are already area restrictions on the use of high emission vehicles. Public opinion has also been swayed against polluting vehicles by Volkswagen’s “dieselgate” emissions/fuel consumption scandal, the ramifications of which are still rolling out, and demand for diesel light vehicles in Europe, which was their major global market area, has diminished substantially.
However, the implications of finally killing off fossil-fueled vehicles need to be recognized. The Automobile Association has pointed out that an all-Electric Vehicle national fleet in the United Kingdom would place an unprecedented strain on the National Grid as all the vehicles are plugged in for charging after the evening rush. The increase in demand has been estimated to be 50%, which will force the UK to import more electricity. The provision of adequate charging points at convenient locations will also be necessary, and it seems unlikely that oil industry-franchised service stations would willingly encourage the use of their forecourts to accommodate them. The broader response of the global oil industry to the progressive phasing-out of their major income flows also promises to be “interesting”, while revenues collected by governments who impose heavy taxes on liquid fuels will progressively dwindle, and presumably will have to be replaced.
On the other side of the coin, we need to look at the implications for the global motor industry. We find ourselves questioning whether vehicles will become more akin to appliances, with much of the emotion taken out of the buying decision. The traditions that have established the present brand loyalty levels in the marketplace were built up on perceptions of technical innovation, excellence, status and dynamic performance that were very much influenced by the evolution of the internal combustion engine. Inevitably, the presentation of a newly-acquired vehicle by its proud owner to his circle of friends involved lifting the bonnet to reveal twin overhead camshafts, multiple carburetors, fuel injection or a turbocharger as important reasons for the brand and model choice. Somehow we can’t imagine the same level of visual excitement being generated by electric motors or batteries.
Many traditionally respected and popular brands previously associated with televisions, refrigerators and other appliances have left the retail space, and consumers have become increasingly accustomed to accepting unfamiliar brands based on an acceptable mix of features and pricing. It remains to be seen if a similar trend emerges with automotive purchases, but if it does, it may be to the benefit of Chinese manufacturers who have, so far, failed to establish global credibility for their automotive brands. We have already seen the emergence of American innovator Tesla as a credible automotive brand, with no history in the field prior to the development of its electric vehicles. Questions could also be asked about the relevance of the traditional motor dealer in an all-electric environment, where vehicles could presumably be ordered through a supermarket chain, and serviced by the neighbourhood electrician!
There are clearly many unanswered questions in this context, and the envisaged scenario will surely emerge progressively over a number of decades. Nevertheless, the subject is deserving of considerable thought and debate, and we look forward to covering developments as they roll out in the years ahead.