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Toyota vs. Volkswagen: the battle of models

Toyota displayed both the YARiS L and the new Vios at the recent Guangzhou Auto Show. Toyota’s small cars revealed the company’s big strategy.

The global No. 1 carmaker bid goodbye to the history of not making cars under ¥80,000 ($13,000) in China. At a starting price of ¥69,800, the YARiS L and new Vios are cheaper than Korean brands and only slightly more expensive than the Chevy New Sail. The price is jolting because the two Toyota models are more spacious and fuel efficient than similar makes.

After trailing far behind Volkswagen in providing low-cost cars, Toyota seems to have suddenly overtaken its competitor, “over the curve” so to speak. Volkswagen’s low-cost models priced at ¥60,000 won’t be available until 2015.

Earlier in an article titled “What can Toyota learn from the Santana,” (see CAR, February 2013) I had the following comment: “The greatest challenge for Toyota, if it intends to make a turnaround and square off with Volkswagen, is to take the risk, as did the German carmaker, in modifying its product strategy and developing low-cost vehicles meeting Chinese consumer demands.”

Toyota has acted unexpectedly fast. In reality, however, the design of the YARiS L and new Vios started as early as in 2009. Toyota spared no efforts in completely redesigning the two models trying to cater to Chinese consumers’ preference for space, fuel efficiency, styling and low cost.

The YARiS L and Vios may be just the beginning of Toyota’s low-cost strategy in China. Hiroji Onishi, managing officer at Toyota Motor Corp. and president of Toyota (China) Investment Corp., told me at Auto Guangzhou that the company may launch A-class models with a starting price of ¥80,000, competing directly with the Santana and Jetta.

GAC-Toyota reportedly will launch a compact sedan next August. It remains to be seen if it would be a low-cost model and if FAW-Toyota would launch a similar one. It is obvious that Toyota has given up its product strategy not to make low-cost cars in China.

The product lines of Toyota’s two JVs in China do not overlap. Currently FAW-Toyota makes 10 models, and GAC-Toyota five. GAC-Toyota may add an A-class model but it will be different from the A-class model made by FAW-Toyota. FAW-Toyota’s Vios is a three-box car whereas the GAC-Toyota’s YARiS is a two-box. Their B-class cars are also different. The FAW-Toyota’s Reiz is a sports model and GAC-Toyota’s Camry a business model. Other models made at the two JVs are completely different.

Volkswagen’s product lines at its two JVs are mostly overlapping. The A-class models produced at FAW-Volkswagen and Shanghai-Volkswagen, which take up half of China’s market shares, compete directly with each other, such as Sagitar vs. Skoda Octovia, Bora vs. Lavida, Golf vs. Gran Lavida, and Jetta vs. Santana and Skoda Rapid. The B-class Magotan competes directly with the Passat and indirectly with the Skoda Superb. Despite outcries of “internal fighting” and “self-defeating,” both Volkswagen plants in China have done exceptionally well.

Now that Toyota has been able to overtake Volkswagen “on a curve,” it should also be able to catch up and even surpass Volkswagen in the deployment of its product lines in China. Volkswagen has proven, after more than 10 years of wavering between exquisite small cars with advanced technologies and “simple but large cars,” that both low-cost cars and overlapping products would find enough customers in a super large and most diversified market as China. Toyota has all the resources to follow suit.

Volkswagen, however, would not sit idly for Toyota to catch up. A senior Volkswagen executive said a year ago that “we need to launch the low-cost Up model” priced around €6,000-€8,000. Volkswagen China president Jochem Heizmann said in September during the Frankfurt Motor Show that the company would launch low-cost JV car models. At the recent Guangzhou Auto Show, Heizmann said Volkswagen China would double the locally produced models in the next five years to a total of 35. Most of the new models would be NEVs (plug-ins and BEVs).

As far as hybridization is concerned, Volkswagen seems to be a follower of Toyota unable to surpass, although it never admits to the fact. But in terms of product lineup strategies, Toyota has been a follower of Volkswagen in China. It remains to be seen if Toyota would be able to catch up and surpass Volkswagen in the next 10 years. The new round of battles between the world’s two heavy-weight carmakers in China has just begun. We may anticipate some outcome in about five years, even though the outcome may not be that Toyota outsells Volkswagen in China, but how Toyota closes up on Volkswagen from the current 1:3 sales ratio.

(Rewritten by Wayne Xing based on author’s article on blog.sina.com.cn)

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