Industry Overview
In the present market, the automotive industry globally encompasses the prime manufacturers, Toyota, Volkswagen, GM, Honda, Ford, etc., all operating in the global competitive marketplace. Since the second half of the 1990s, it is understood that automobile industry’s globalization accelerated with the construction of highly significant overseas facilities and the establishment of acquisitions and mergers between the global automobile MNCs (Hiroaka, 2001 p.1). In the year 2015, sales of passenger cars globally reached 73.9 million vehicles and the total sales reached above 90 million. On the basis of current growth rate, the automobile industry is expected to grow above 100 million in sales (Statista, 2015). The post recession period has seen the global automobile industry enjoying a sustainable period of profitability and strong growth rate, as annual sales levels have started to match the pre-recession period in a few regions.
The global automotive industry has witnessed a continuous growth in the past five years. Throughout the global market new brands have joined the industry to compete with the current players. Many automakers have brought new innovations, economy, and exotic appeal through their cars. But, in terms of sales numbers and revenue break-up automobile industry remains highly consolidated. These brands are; Toyota, GM, VW, Ford, Hyundai, BMW, Daimler, FCA, Nissan, Renault, Tata, Honda, PSA and Geely control majority of the global automobile market, revenue and the biggest car brands (Zhang, Nudelman & Gould, 2015). The soaring Chinese market, re-establishment of U.S. car market sales standards, and increasing growth in upcoming markets such as India and Mexico is an indication of greater revenue and sales possibilities for the automobile industry for the future.
Company Overview
Toyota Motors is the market leader in the global automobile industry in terms of vehicle sales. Since its foundation in 1933, Toyota has grown from a Japanese manufacturer to a global giant in manufacturing and sales of motor vehicles. They are currently operating through segments such as automotive operations, supportive financial services and other operations.
Lately, Toyota has started to venture into the quickly expanding market of environment-friendly cars, especially in countries such as China, where the government is struggling to control air pollution rates. Toyota has also started working for the development of parts for Hybrid cars with Chinese carmakers in a technology sharing deal for facilitating increased sales of green cars in the biggest automobile market of the world. On the basis of revenue, Toyota expected to deliver a net profit of US $16.97 billion, but they ended up overachieving with US $18.1 billion (Deutsche Welle, 2015).
Currently, Toyota is conducting their business in 26 nations and regions with 50 overseas based manufacturing companies. More than 170 nations throughout the world are selling vehicles manufactured by Toyota and their subsidiaries such as Lexus, Hino and Daihatsu brands. In 2015, Toyota enjoyed 11.6 % of the international automobile market, making them the market leader above VW and GM. Toyota is also the market leader in terms of car production as in 2014, 10.4 million cars were sold by them (OICA, 2015). For years, Toyota has utilized terms such as ‘the environment’ and ‘safety’ as themes for their business model and promotes manufacturing by supporting and adding features that helps customers easily use and enjoy their vehicles. Toyota’s market leadership was closely challenged by VW in 2014, but the car emission scandal has left their German competitors further behind in terms of sales and revenue in 2015.
PESTEL Analysis
Political Factors
In the current political climate the automobile industry is faced with the challenge of climate change laws that could be implemented in near future. As countries working together for reducing carbon emission from cars, automakers such as Toyota are faced with the challenge of coming up with greener cars and introducing new technologies. For most global automobile companies, political stability is an important concern as their production and sales can be halted leading to decreased sales. Due to their political stability countries such as India, Russia, Brazil and China have turned out to be strategically and great source of revenue for companies like Toyota. Regulations related to ELV (end of life vehicle) will also have a major impact on the automobile industry as countries in the European Union are planning measures for recycling cars. Organizations such as Toyota will be challenged with producing and recycling cars after their age of use is completed (KPMG, 2015).
Economical Factors
Automobile industry throughout the world is impacted by the taxation applied to the cars produced by automakers and the revenue generated. Higher tax rates mean organization net profits are reduced and they end up increasing the prices of their cars. Economic growth also impacts the destiny of automakers such as Toyota in the industry as economic growth in countries such as China and India helps in increases the size and revenue of the automobile industry. But, decreased consumer spending and decreased GDP of EU based countries have seen decreases in the size of the European car market in the last few years. Fuel Rates also impact the automobile industry as increased fuel rates lead to decreased consumer spending on cars that run on petrol and diesel and increased spending on hybrid cars. It is expected that by 2020, around 5 out of 100 cars will be running on electricity (KPMG, 2015).
Social Factors
Automobile industry is impacted by the changing attitude of customers towards automobile use due to their environmental impact. Many consumers prefer using the public transport system in order to conserve the natural resources and protect the environment. Change in attitude towards spending is also significant for automakers as seen in the EU in past 5 years and throughout the world during the period of recession. During the recession time, several customers had changed the perception about spending on assets such as cars as there were other important necessities that they needed to secure for their family. Changing family patters (Gays, Single-parents, etc.) also impact the automobile industry as it is possible that sales of premium cars can increase and families that focus on greener vehicles would prefer purchasing cars that runs on electric technology (Ferguson, 2015).
Technological Factors
The automobile industry has always been dependent on the introduction of new technologies and innovations that can attract customers throughout the world. Toyota with their cost-effective and fuel efficient car (Corolla) and hybrid car (Prius) has already proven the importance of technological forces on the automobile industry. In the current industry, the demand has been increasing for green cars that can run on electricity and helps in moving towards a future where cars produce limited or no carbon emissions. Innovations such as driverless cars are also fast becoming a reality and will have a significant impact on the automobile industry and its major players. Another technological factor that impacts the automobile industry is the demand for alternative fuels that can change the game for many automakers (Ferguson, 2015).
Environmental Factors
Climate change is a significant factor that influences the future of the automobile industry as companies like Toyota are already moving towards identification and production of cars with higher fuel efficiency and cars than run on electricity. Environmental factors can also negatively influence the automobile industry as seen in the case of Volkswagen that is currently going through one of the biggest scandals in the automobile industry due to their unethical error with the use of cheating software to pass the EPA emission regulation. With declining oil reserves globally, it is clear that the automobile industry faces an opportunity to move towards alternative fuels, electric vehicles and other forms of carbon less technology. Non-governmental organization also have a hand to play in the automobile industry as several automakers are challenged by environmental organization fighting to reduce carbon emissions from cars (Ferguson, 2015).
Legal Factors
Automobile industry faces significant challenges in terms of employment laws as there have been changes in the health and safety laws and regulations. Copyrights and patents are also significant forces as organization have control over development of technologies and breaking the code of law leads to criminal indictment and heavy fines for automakers. One of the biggest factors that impact the automobile industry are the environmental regulations as all automakers need to follow a certain code of law before selling their cars to consumers. Breaking the environmental laws can lead to the automakers facing heat from the regulatory authorities and governments, as seen in the case of German automaker VW. Finally, consumer laws also play an important role in the automobile industry as all automakers need to ensure that consumers buying their products are safe within their cars and should get all facilities and services (Ferguson, 2015).
SWOT Analysis
Strengths
Innovative culture (high probability) has been part of Toyota since its inception in 1933. They have been leaders in introducing new technology in the past and their current efforts are focused to being greener cars to the market for satisfaction of consumer needs and impending government regulations. Green car development (low probability) is one of the areas where Toyota has started to invest heavily and have proven experience in terms of introducing the first hybrid car (Prius). But, there are already major electric car technologies produced by Tesla that has captured the market and attention of consumers (Ferguson, 2015).
Weakness
Although the automobile industry has seen unprecedented growth in emerging markets (high probability), Toyota remains miles behind their competitors. They face significant competition from players such as Hyundai, Suzuki and GM as they hold a significant share of important markets such as Brazil and India. Recalls (Low probability) is one of the weaknesses faced by all automakers as even a small technological error can lead to large scale car recalls. In addition, a major error by another manufacturer can bring the spotlight back on all automakers as seen in the case of VW. Already all automakers have been asked to get their cars tested for emission rates with a sword hanging over the Diesel car category. Toyota has also experienced recalls in the past due to accelerating cars and floor mats (Ferguson, 2015).
Opportunity
Weaker Yen (high probability) provides an opportunity to Toyota to expand their revenue through exports, especially through the U.S. market where the sales numbers have started matching the pre-recession numbers and the rapidly increasing demand in emerging markets where Toyota is already actively promoting their brand. Growth by acquisitions (low probability) is another opportunity presented to Toyota as they have been known to acquire other car manufacturers in the past. Toyota can easily acquire upcoming or major competitors to increase their market share and sustain their leadership in terms of sales numbers and production numbers (Ferguson, 2015).
Threats
Electric carmakers (high probability) are the biggest threat to Toyota as they are already capturing the attention of consumers who prefer buying greener technology rather than investing in carbon emitting cars. For example: Tesla is already making a reputation for themselves for the innovative technology they have brought to customers with their cars. Natural disasters (low probability) also serve as a threat to Toyota as seen in the case of the 2011 earthquake and the following Tsunami, as production of Toyota cars was halted (Ferguson, 2015).
Target Market
Toyota targets customers from different segments with premium based cars used to target upper class customers and a burgeoning section of affordable cars used to capture the middle class or the masses. Historically, the reason for Toyota’s major success has been their focus on serving the needs of the middle class segment. Since the 1970s, Toyota has been successful in targeting the middle class and satisfying them with products such as Corolla that provided fuel-efficient solutions at cost-effective purchasing price. Toyota cars have made their reputation for being fuel efficient and cost effective and winning customer over with their hybrid technology. Overall, they have been focusing on the middle class for years and have managed to gain significant share of their target market through innovative technology and strategic choices.
4Ps and Toyota Strategies
Product
Toyota Motors has diverse and large collection of products and manufactures different types of car for different customer segments. They manufacture Lexus for customers looking for luxury cars and Welcab series for the elderly and disables. They make Prius for the environmentally-friendly car seeking purchasers and Corolla for fuel-efficiency seeking buyers. Overall, Toyota offers customers with varied options in different price ranges and had a wider market range. Having large number of products also helps Toyota to lessen their reliance on brand and reduce market risks such as change in customer taste, better technology, etc. (Rowland, 2015).
Price
In terms of pricing strategy Toyota utilizes the strategy of two pricing policies. For the more affordable section of their cars, Toyota has developed the market oriented pricing that determines prices on the basis of prices of competitors and market condition. This pricing strategy is mostly used for their sedans and trucks. Another strategy utilized for the company for high-end or a luxury cars is known as the value-based pricing strategy. In this case, Toyota sets prices on the basis of the perceived and actual value of the cars. This strategy is seen for luxury cars such as Lexus and Prius. Toyota is known to implement a pricing strategy on the basis of customer’s perceptions and market conditions, satisfying the needs of the masses (Rowland, 2015).
Place
Toyota has always been dependent on their dealerships for the sale of their cars. Dealerships work as distributors of Toyota cars throughout the world. In addition, dealerships are the place where customers visit to view cars and catalogues. Dealerships are used for conducting sales of Toyota cars and most transactions occur at the dealership. Apart from dealerships, Retailers such as auto supply stores also work as places for marketing Toyota car parts, accessories and other products. Mainly, Toyota is heavily reliant on their dealership to market their products. Dealerships provide customers with all necessary information on Toyota cars and help them with all proceeding related to the sale of the car (Rowland, 2015).
Promotion
The promotional mix of Toyota Motors utilizes all available options to market themselves to their potential customers. Personal selling is used through sales personnel at the dealerships, who personally promote the cars to the potential customers. Advertising is bought on different mediums such as online, print, TV and radio to reach out to the maximum audience. Toyota also utilizes public relations through their program (TogetherGreen) for supporting environmental initiatives and their program Meal Per Hour is used for donating food. Toyota also endorses sales promotion on their cars and accessories through deals during festive season and low seasons to increase footfall in their dealerships. Corporate clients are approached in the form of direct selling strategy and supplying Toyota cars to offices (Rowland, 2015).
5 Year Plan
Currently, Toyota is the market leader in sales and manufacturing of cars, but they were closely challenged in 2014 by VW. This should be a warning signal for Toyota as they will be challenged by other carmakers for their industry leadership in the coming years. Toyota needs to identify markets where their sales are decreasing and start developing a marketing strategy that focuses on capturing the attention of customers. Toyota should also offer better prices on their cars and ensure customers feel they are getting a better car from Toyota than competitors. As many customers are getting concerned with environmental degradation with carbon emission from cars, the next move needs to be towards electric cars. Toyota also needs to start working on greener cars and develop their first electric car to compete with highly popular Tesla. Other measures that Toyota needs to work on are alternative fuels and self-driving cars that can be increasingly popular in future.
References
BERA. (March 2014). Global Automobile Industry. Available: http://www.loc.gov/rr/business/BERA/issue2/industry.html#1. Last accessed 2 January 2016.
DW. (25 January 2015). Toyota remains global car industry leader. Available: http://www.dw.com/en/toyota-remains-global-car-industry-leader/a-18203748. Last accessed 2 January 2016.
Ferguson., E. (26 September 2015). Toyota PESTEL/PESTLE Analysis & Recommendations. Available: http://panmore.com/toyota-pestel-pestle-analysis-recommendations. Last accessed 2 January 2016.
Hiroaka, L. S. (2001). Global Alliances in the Motor Vehicle Industry (2nd ed.). Westport, CT: Quorum Books.
KPMG. (2015). KPMG’s Global Automotive Executive Survey. Available: https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/global-automotive-executive-survey/Documents/2015-report-v2.pdf. Last accessed 2 January 2016.
OICA. (2015). WORLD MOTOR VEHICLE PRODUCTION. Available: http://www.oica.net/wp-content/uploads//Ranking-2014-Q4-Rev.-22-July.pdf. Last accessed 2 January 2016.
Rowland., C. (25 September 2015). Toyota’s Marketing Mix (4Ps) Analysis. Available: http://panmore.com/toyota-marketing-mix-4ps-analysis. Last accessed 2 January 2016.
The Statistics Portal. (2015). Statistics and Facts about the Global Automotive Industry. Available: http://www.statista.com/topics/1487/automotive-industry/. Last accessed 2 January 2016.
Zhnag., B. Nudelman., M & Gould., S. (19 February 2015). These 14 giant corporations dominate the global auto industry. Available: http://www.businessinsider.in/These-14-giant-corporations-dominate-the-global-auto-industry/articleshow/46303778.cms. Last accessed 2 January 2016.
