The March of the Toyotas

Opinion

The fight for the hearts and minds of consumers is a tough one.

In the past three decades Toyota Australia's rise in vehicle sales of all types has been unstoppable.

First it was four-wheel drives that had Australians hooked; for their durability, performance off-road and reliability -- handy if you live 200 klicks from the nearest servo. More recently Toyota has been consistently Number One in passenger car sales too. Toyota has also been the most ardent promoter of hybrid vehicles in Australia, constantly lobbying state and federal Governments, albeit with only modest success.

Year-to-date 2008, Toyota has outsold Holden and Ford combined, and Corolla was the best-selling car in the quarter, with just over 12,000 sales.

But despite Toyota's impressive (and some might argue, daunting) 22.9 share of the new vehicle market, plus its on-going year-to-year Number One sales status in Australia, do Australians feel Toyota is one of their own? Like Holden, Kangaroos, Meat pies and, ah yes, the mob at Broadmeadows. The ones who invented the Ute.

Or is Toyota still seen as a transplant brand like Mitsubishi or Nissan? Is it the Japanese–ness, the cultural divide that stops us clutching the brand to our breasts?

Even though Toyota sponsors "Aussie Rules Footy", a Victorian code (Toyota manufacturing is based in Victoria), there doesn't seem to be the passion for the brand like there is for Ford or Holden.

Of course the passion index could be directly linked to participation in V8 Supercars, from which Toyota is banned, for not having a locally made V8 rear-wheel drive sedan to field. So, Toyota fans have no place to cheer their team on (nothing to smile about in F1, either).

With 22.9 percent of the market, there must be some passionate car buffs among their customer base. They can't all be middle class accountants. The brand stretches across so many layers of Australian life that everyone from a doctor to a by-ways cleansing executive may drive one.

Toyotas are a fact of Australian life, but have they permeated our social fabric like a Hills hoist, a barbecue, a Victa, a Four 'n' Twenty, or a Holden or Ford?

Does this matter?

Peel back the white coats and spectacles in the Toyota marketing lab and you might find an ardent willingness to trade a few points of market share for a few smiles and hugs. Just where is the Camry Chook when you need her?

In March 2008, Toyota has more right to be taken seriously than ever. Camry, and even more so, Aurion are Aussie cars, partly designed here for our conditions. And there's a 200kW big six up the Aurion's snout.

But do you ever see folks at the shopping centre on a Saturday wearing a Toyota team shirt?

You can win the minds with rational argument. But the hearts?

A few car companies are run by accountants. Accountants have their souls removed at graduation, only to be returned on retirement. Accountants are the human interface between the jackboot of the ATO and Working Australians (formerly known as Aussie Battlers until John Howard's prosperity brought even the most work shy into the active economy, and thus in need of an accountant).

Accountants generally focus on the bottom line. Senior car company executives focus on share values. And not just market share values either. If there's one force the senior car company executives (both accountants and other species) fear most it's the angry investor brigade, institutional or those recently released from institutions.

So while the marketing departments nudge the public relations division to serve up the monthly sales results, analysed to the fourth decimal place, the real 'beautiful set of numbers' is in the profitability of the company. Sometimes this can be clouded by the need to repatriate profits to the parent company, though the rules on transfer pricing are generally pretty non-negotiable.

But let's say you boost sales substantially and enter the top ten in the charts. It doesn't always mean you're making money. You could be just moving metal, keeping the dealers busy. But on wafer thin margins, no-one has the money to invest in better facilities. Then doubt and resentment grow, and coupled with the hike in the cost of borrowing, nervousness sets in.

These are big numbers, 5,000 cars sold every month priced at $30,000 each means shuffling $150 million. When interest rates rise, the cost of keeping cars on grass increases. But these costs have to be hidden from consumers, providing a huge headache for the industry.

So now let us venture into the realm of supposition.

According to VFACTS, the official industry statistician, the top 10 selling makes in Australia year-to-date March 2008 are: Toyota (60,224), Holden (33,850), Ford (26,287), Mazda (21,690), Mitsubishi (16,690), Nissan (15,440), Honda (15,159), Hyundai (11,375) Subaru (10,315) and Volkswagen (7,850).

Using Otto's soon to be patented "Mud-Stick Maths Method" (MSMM) -- which assumes an average transaction price for each model in the range and multiplies it by the number of vehicles sold in the first quarter of 2008 -- we come up with a total value of transactions for each brand. Then divide this by the number of units sold and you have an average transaction price across the range.

It's Mud-Stick Maths because some brands will have more cheaper cars in their range, which holds down the average. But since all calculations of transaction prices have been considered consistently, the comparisons should be equally consistent.

So, let's suppose, for argument's sake, Toyota has sold those 60,224 vehicles for $2.541 billion. That's roughly $42,000 per car. Which illustrates the disparity straight away, since Yaris average prices would be high teens or low twenties and Land Cruisers around $70,000 or higher.

Under this measurement Toyota would turn over $10 billion a year.

Pretty impressive and what you would expect for a company with close to a quarter of the market.

By the same admittedly back-of-the-envelope maths, Mitsubishi's first quarter 16,690 sales average out at around $34,700 per unit (from $579m), Mazda's 21,690 are around $34,000 (from $737m) and Hyundai has an average of $25,000 per transaction across its 11,375 sales ($287m in total).

Subaru, arguably the most premium mainstream Japanese brand has an average transaction price via MSMM of $41,000 per vehicle ($424m), compared with Volkswagen's $38,000 average ($300m), while Audi earns $78,000 per car via MSMM (totalling $204m), and Porsche $192,000 ($416m).

Think of it like this: If premium brand Z sells 1,000 cars a month at an average of $100,000 each, its total revenue would be $100 million. If its gross profit runs at an average of 15 per cent, it makes $15m.

Mainstream Brand Y only scores a gross profit of 5 per cent, so it must sell 10,000 cars a month at its average transaction price of $30,000 to make the same profit as Brand Z.

But brand Z has only a tenth the number of dealers and staff, one tenth the number of units to process through the ports, dealers, registration authorities, etc., which explains part of its profit margin differential. Premium positioning helps plump up the rest of the profit disparity.

For both brands however, a volatile exchange rate for currency and increasing cash funding costs can make a huge impression in the bottom line.

So next time you're wandering the halls of a motor show and a brave brand pulls the wraps off an achingly beautiful Coupe to celebrate some birthday or other, don't give your heart away.

Instead trek along to mainstream brand Y and fall in love with a white car with a grey interior. You know it makes sense.

Footnote

1. You might be surprised to see Subaru and Toyota having such similar average transaction prices. Remember this is Otto's nearly-patented 'Mud-Stick Maths Method'. It doesn't necessarily indicate similar levels of profitability per unit. Toyota sells a lot of $20,000 cars and a lot of $60,000 4WDs. Even if it makes the same percentage profit per unit, the actual dollars will be vastly different.

2. These calculations of revenue and average transaction prices are very rough and not to be confused with actual transaction prices. (Oddly enough, these figures are never released.)

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