2. SWOT analysis
2.1 Strengths
2.1.1 Car specification, price and after sale services
Toyota Camry and Honda Accord have the almost exact same specification. We can also say that the products are indifferent. Camry 2.0G and Accord 2.0E are brought as the example in Table3.
Table 3: Car specifications Comparison between Camry and Accord
Source: Toyota K. Motors, Honda Sathorn
It is also no surprised that after sale services are almost exactly the same between Toyota and Honda as described in Table 4.
Table 4: Comparison between Camry and Accord
Source: Toyota K. Motors (dealer), Sathorn Honda Car (dealer)
However, though the car and the after sale services are almost the same, the selling price of Toyota is lower than Honda. Camry 2.0CC has price range between 1,224,000-1,325,000THB and Honda 2.0CC has price range between 1,265,000-1,420,000THB. Camry 2.4CC is 1,449,000THB while Accord 2.4CC price ranges between 1,547,000-1,687,000 THB. When the products are identical but one product has lower price, people would buy the cheaper one which is Camry in this case. The reason that Toyota can set lower price is probably because Toyota has benefit from both economy of scale (higher production volume) and economy of scope (more models).
Table 5: Price Comparison between Camry and Accord
Source: Toyota K. Motors (dealer), Sathorn Honda Car (dealer)
In addition to the lower price, Toyota also offers lower leasing rate. Toyota has “Toyota Leasing” as the separate entity to do their leasing business. According to Mr. Henry Tolentino’s interview, president of Toyota Leasing, Thai people normally purchase car by using financing 60% and using cash 40% during the past 10 years. But currently the financing method has been increased to 85% and cash payment method is constantly in decreasing trend. Toyota Leasing can capture 43% of Toyota buyers and targets revenue of 52,000 million this year. The slogan is “knowing the approval result within 15 minutes”6.
Honda also has “Honda Leasing” program, which has been established in 2002, to offer the leasing options for their buyers. Even though both companies have the same strategy by having their own leasing companies, Toyota tends to have better offers to its customers. Table 6 below demonstrates that Toyota can offer 0.1% lower interest rate as well as 5% lower down payment than Honda at this time. That makes Toyota even attractive to buy as well as its lower price.
Table 6: Comparison of leasing rate
Source: Toyota K. Motors (dealer), Sathorn Honda Car (dealer)
2.1.2 Resell price
Toyota is well known for its second hand car price. “Toyota Sure” is one of Toyota companies setting up to manage Toyota car resell business. This helps them to control the second hand price in the market since higher resell price is one of the decision factors when buying car.
Table 7: Second Hand car price
As demonstrated in table 7, two types of factors are shown for comparison; year 2006-2007 with 2400CC and year 2000-2002 with 2000CC. In year 2006-2007 car, Toyota Camry price ranges around 1 million THB while Honda Accord price ranges around 0.7-0.8 million THB. In year 200-2002 car, Toyota Camry price ranges around 0.5 million THB while Honda Accord price ranges around 0.3 million THB. This can be a rough example showing that Camry has higher resell price than Accord.
2.1.3 Financial Status
Toyota Motor Thailand (TMT) is the company that manufactures automobiles for Toyota, including Toyota Camry. It is one of the biggest car makers in term of Revenue in Thailand. For clearer viewpoint, we would compare it with HATC. However, the financial data analyzed below is one year laggard. According to Thailand’s regulation, companies have to submit the audited financial statement to the revenue department at the end of May of the following year. After that, it also takes couples months for the rough financial data of non-listed companies to be purchased online. Therefore, the data of 2010 is not available yet.
Table 8: Comparison of Profit and Loss statement between TMT and HACT
Source:
Table 8 shows that in 2009 Toyota had revenue of 292,702 million THB while Honda had revenue of 19,238 million THB approximately. It seemed that Toyota could control the cost, in term of percentage, better than Honda except its COGS which was somewhat higher than Honda (92.22% compared to 84.51%). But Toyota still had higher net income margin than Honda.
Table 9: Comparison of Balance sheet between TMT and Honda Motors
Source:
Table 10: Comparison of Financial Ratios between TMT and Honda Motors
Source: Group analysis
Only the important ratios and the significant numbers are discussed from the balance sheet and financial analysis tables. From the liquidity ratios, it shows that Toyota has higher liquidity than Honda. It means that Toyota has more ability to pay off its finance obligations. From the asset management ratio perspective, Toyota has 28.79 days and Honda has 55 days for the average collection period which means that Toyota can collect from the customers (or dealers) faster than Honda. Toyota has the inventory turnover of 27.1 times while Honda has 8.15 times. It illustrates that Toyota can turn the products into sales faster than Honda. The fixed asset turnover ratio of Toyota is 7.44 and Honda is 21.67. Honda has significantly higher fixed asset turnover compared to Toyota, meaning that Honda is more efficient in using the fixed asset to generate sales. However, this is probably because of the new Toyota plant which aims for capacity of 180,000 units a year that had just begun the production in year 2007. From financial leverage management, Toyota has D/E ratio of 0.9 times while Honda has 10.1 times. This shows that Toyota uses less debt to finance its assets; hence it implies that Toyota has healthier cash position and has more ability to generate new funds. From profitability ratios perspective, Toyota has considerably higher net profit margin (3.76% vs. 1.13%) and ROI (12.4% vs. 4.10%), meaning that its investment is more efficient. But Honda has significantly higher gross profit margin (15.49% vs. 7.78%) and ROE (45.45% vs. 23.68%) which means Honda has better cost control and can generate more returns to the shareholders.
In brief, Toyota is very strong for both revenue and profit, although it has higher COGS than Honda. This might due to its various types of models and facilities. However, Toyota is still able to generate better D/E ratio and deliver higher ROI.
2.1.4 Production Excellence
The reason why The Toyota way or Toyota Production System (TPS) is well known and widely acceptable is probably because Toyota was the company that had highest profit among Japanese companies in year 2004 (which is the year that Toyota Way book was launched) and also broke its own record in year 2005 with approximately 10,000 million USD cash on hand7. It is even said that TPS is the new revolution of mass production after Ford’s invention. This system has been duplicated and used worldwide.
Toyota Production System’s main concept is Lean manufacturing, continuous improvement and 7 wastes. TPS is designed to cut out overburden and inconsistency, and to eliminate waste8. TPS also value its people with the principle of respect for people and teamwork. Toyota production line is designed for the “pull system” which is derived from the customer order and then moved down stream to the warehouse, then finally to its production line. In this case, the production line can be adjusted upon customer’s demand and orders.
Honda developed its own production system, called Honda Production System (HPS), from the much admired TPS9. HPS is “push system” with production planning based on market forecasts9. This system is suitable for mass production but more difficult to adjust to customers’ orders than the pull system9. The reason is probably because Honda’s first product is the motorcycle, not the automobile. Therefore, the production line was initially designed for motorcycles, which is less complex and has less functions/options than the automobile. Honda also claims to have a human-centered for work, but it is less rigid in defining than Toyota9.
2.2 Weaknesses
2.2.1 Camry recall problem in U.S.
During 2009 to January 2010, the number of recalled Toyota cars was about 8 million, in which included the Camry models (5.3 million) during year 2007-2010 because of the gas pedal and floor mat problem10. Honda also had recall problem including Accord model, but the number of recall was only less than a million in the same period11.
The recall extremely hurt their brand image. According to a new media study, the majority (56%) out of 301 people who viewed a news clip showing the Toyota recall indicated that they are not likely to buy a Toyota car after watching the clip12.
Table 11: The likelihood that interviewees' next car purchase will be a Toyota vehicle
Source:
This event dramatically affected the trust of Camry buyers worldwide. In other words, Camry sales might have been higher if there were no recall problems. According to a panel discussion arranged by Thai Auto Parts Manufacturers Association (TAPMA), one speaker even criticized that if the TPS was proven to be the best production concept, the large number of recalled cars due to quality problem should not had happened.
2.2.2 Brand image
Though Toyota brand is very strong in terms of quality and reliability, the brand is not perceived by many as to be prestigious. That is the reason that Toyota has to launch other brand, Lexus, for the upper class car in the same passenger car segment. Even though Honda has fewer models, those models cover only the passenger car segment. That makes the buyers think of Honda more when talking about the passenger car segment.
Moreover, as having said that Toyota brand perception has drastically dropped after the recall problem, a report released recently by Zpryme Research& Consulting LLC shows that Toyota was ranked number 1 for electric vehicles in 2010 but significantly fell down in 2011. The ranking in 2011 is even lower than Honda.
Table 12: Car makers’ brand perception ranking
Source: Zpryme Research& Consulting LLC
2.3 Opportunities
2.3.1 ASEAN Free Trade Agreement (AFTA)
Thailand is the leader in ASEAN (Founding members are Thailand, Malaysia, Brunei, Indonesia, Singapore, and the Philippines. New members are Cambodia, Myanmar, Vietnam and Laos) with the annual output of 1.8 million units. The output exceeds half of region-wide demand. Thailand is now also the world’s production center of 1-ton pickups which are exported to over 140 countries13. After arguing for many years, new product champion, eco car, is now starting to be produced and this can strengthen Thailand’s position in global automotive industry13.
Tariff tax of imported parts had been slowly cut to 5% in 2009 and slashed to 0% in 201013. Therefore, the cost of imported part would be lower and that could be benefiting Toyota since it’s the biggest ASEAN production base is in Thailand. This means the total cost of car would be reduced especially for the Camry Hybrid model because Toyota imports lots of parts for the Hybrid engine. Moreover, AFTA also lead ten ASEAN countries into a single market. This means a larger customer base.
2.3.2 Exchange rates
Toyota exports the Camry to Australia, Indonesia, Singapore, Malaysia, Philippines, Taiwan, Vietnam, and the Middle East in both CBU (completely-built-unit) and CKD (completely-knock-down) forms. Camry is the most exported to the Middle East (48%), Australia (24.3%), Taiwan (8.59%) and Malaysia (6.1%) consequently14.
Table 13: Toyota Camry Sale volume (Jan - May: Actual, Jul - Dec: Forecast adjusted after Tsunami affect
Table13: Toyota Camry sale volume (Jan-May: actual, Jul-Dec: forecast adjusted after Tsunami affect)
Source: Toyota supplier meeting in June 2011
As Toyota Camry’s export volume contributes 44% out of total, exchange rate plays important role determine the profit or loss.
Table 14: Honda Accord sale volume (Jan-May; actual, Jul-Dec; forecast)
Source: Honda supplier meeting in June 2011
The table 13&14 show that Honda Accord is also exported to the same countries as Toyota Camry, but with very much less in proportion (Toyota exports 44%, Honda exports 19%). Therefore, the impact of exchange rate to Honda is also less than Toyota.
Figure 2: Thai Baht to 1 AUD
Figure 3: Thai Baht to PKR (as proxy of the Middle East Countries)
Figure 4: Thai Baht to TWD
Figure 5: Thai Baht to MYR
Source: www.x-rates.com
As figure 2-5 show that Thai Baht to Australia Dollar is in the weaken trend during this year. Thai Baht as oppose to both Taiwan Dollar and Malaysia Ringgit is approximately the same on average, however it also shows weaker trend during last couple months. Only exception is Thai Baht to Pakistan Rupee which is in the stronger trend. This might be a good chance to increase the export volume. Even though the export volume is not changed, the company might also have more exchange rate gain automatically. It is important to note that Toyota will have more benefit from exports than Honda due to its larger export volume. However, Toyota would also have more loss if the exchange rate goes in the opposite way and that change can become a threat.
2.4 Threats
2.4.1 Steel price
The importance of steel is that it is the main cost of making the car. Procurement of steel is so important that most of car makers normally combine the volume even from their suppliers who also use steel, and negotiate the price with steel mill directly. The supplies have to be purchased from the dedicated steel mill or coil center in the dedicated price. Such system is called “central purchase”. Toyota has “Toyota Tousho” and Honda has “Honda Trading” doing this job for them.
Figure 6 illustrates the price of steel in five different categories. Hot roll and cold roll are the types that more commonly used in automotive and the graph shows that the steel price is in an upward trend. For example, hot roll price was 592$/ton in October 2009 and it became 850$/ton in February 2011. As the main material of car is steel, it is unavoidable that the cost of car is getting higher. Though, there is an attempt to replace the steel in certain car parts to the material that is cheaper and lighter. The real replacement in mass production still seems too far away though.
Figure 6 : Steel Price over time
Source: www.steelonthenet.com
2.4.2 Energy policy of CNG and LPG price
Compressed Natural gas (CNG), or sometimes called Natural Gas for Vehicle (NGV), is also used as alternative energy in the passenger car. However, the main use of CNG is for industries (47.2%) and households (43.6%), while vehicle usage is only 16%15. But since CNG is the main cost for industries and households, the government tries to subsidize the cost which is also indirectly beneficial for vehicle users.
The other type of gas that can be used for vehicles are Liquefied Petroleum Gas (LPG). In general, LPG is also used for both industrial and household purposes. Government also subsidizes LPG for household purposes. Therefore, vehicles using LPG will also gain this privilege. It is said that LPG station is even more profitable than oil station because of this subsidization. Hence, there are increasingly LPG stations opening in Thailand.
Because of these alternative energy policies, it significantly creates high demand for cars that can use alternative energy. It is a direct threat to the combustion engine car, or even Hybrid engine technologies that are equipped in Camry.
2.4.3 Tax implication in the future
There is the potential of restructuring the vehicle excise tax system from the current structure which based on engine size and horsepower to be based the efficient use of energy, pollutant reduction and enhanced safety standards (emission tax)16. Although the cabinet just rejected the proposal of changing the tax restructure last month, the study of the new tax system is still going on and it is expected to propose to the new government again. If the restructuring does happen, the size of car engine will not be the factor of the buying cost anymore. That means the buyer can easily switch from middle size passenger car to buy either a bigger or smaller car size.
2.4.4 Interest rate
Figure 7: Thailand Interest rate
Source:
Figure 7 illustrates that Thailand’s interest rate has been gradually higher since 2010, and The Monetary Policy Committee (MPC) had just voted to raise the policy rate by 0.25% to 2.75% in April this year17. Central Bank maintains its hawkish stance, with the expectation that Thailand’s economy will continue to perform robustly, the demand will increase and the rising crude oil and commodity prices may fuel inflation17. Therefore, it is likely that MPC will continue to use the monetary policy to control the inflation. It is predicted that MPC would increase interest rate 0.25% more in their meeting this month18. This is unavoidably impact the leasing rate of car. Consequently, it would affect the buying power of the buyers because the cost of car from the buyer’s point of view would be more expensive.
2.4.5 ECO Car
Thailand’s biggest segment by production volume is the 1 ton pickup with the target volume of 1,000,000 this year. However, in order to become the leader in the global automotive industry, it is necessary to have next product champion from Thailand. Therefore, Eco car package is being promoted by Thailand’s Board of Investment (BOI) which is the government agency to promote Foreign Direct Investment (FDI) to Thailand. The Eco car regulation and promotion package is listed in the following;
ECO car regulation19;
- The total investment package is not less than 5 billion THB in both car maker and its part makers.
- The production volume is not less than 100,000 units per year from year 5.
- Fuel consumption is not more than 5.0 liter per 100 km.
- Must meet environmental standard requirements EURO 4 as a minimum.
- The carbon dioxide emissions cannot be more than 120 g/km.
- Must meet UNECE Reg.94 and Reg.95 safety standard
The privileges from BOI are;
- Waive corporation income tax for 8 years in any area where facilities are located, but not more than the investment package volume.
- Waive import tax for new machines.
This investment privilege is very attractive for many car makers. Currently there are approximately 7 car makers that already applied for this ECO car package. Looking from the minimum production volume, the only way to meet the requirements is to export. However, it also cannot avoid the fierce domestic competition in this segment.
The expansion of the passenger car sales is caused by factors such as an increasing middle class, particularly in urban centers, and a greater lineup of models available, yet at the same time, a change in demand mix among the passenger car can be seen20.Therefore, people might shift from buying mid-size cars such as Camry and Accord to this new small eco car.
Toyota plans to launch a new low-cost compact car probably in 2013, it is designed to meet the Eco car project, and to replace the Yaris (its current small compact car). Honda also launched its ECO car “Brio” March 2011 and plans to also export to India20
Figure 8: Major model launches and plans by brand
Source: FOURIN Asia Automotive Intelligence
As shown in figure 8, Toyota aggressively and consistency launches new models into the market. Therefore, even though the eco car is a threat the mid-size passenger car, it can also be an opportunity for the car makers as a whole since there is new market segment created.
3. Conclusion
Toyota has established a solid ground in doing business in Thailand. This is because they have developed a lot comparative strength over their rivals such as price, production system and financial strength. Even though they are number one in Thailand, there are some certain areas that they can improve in order to be better and to stay number 1. Improving the production cost and emphasizing on brand image are some examples. Toyota has done very impressive work in terms of doing business in Thailand although they are a foreign company. However they have to stay up to date to the common international factors such as the tax tariff from neighboring countries, exchange rates and raw material prices because if an industrial leader such as Toyota cannot adapt to changes fast enough, it is possible that they can lose their competitive position in the future.
4. Recommendation
Toyota has been very strong in Thailand for decades. However, it still has both strengths and weaknesses. The chart below describes its SWOT in comparison with Honda. (SWOT in the chart brings up only the subjects that have impact to each other. The SWOT here omits the matters that have the same impact to both car makers as mentioned in the SWOT topic above).
Figure 9: SWOT- Toyota and Honda
As Toyota has lower car price while the car specification is indifferent, this makes Honda a lot weaker from price perception. However, selling with a lower price but having higher cost of goods sold makes Toyota’s gross profit margin lower. But the reason that Toyota is still able to keep the low price with thin margin is because of its economy of scale. Toyota’s selling volume is much more than Honda and its rivals. Therefore, one strategy is that Toyota should have more focus on reducing the cost in order to make higher gross profit margin since it consumes more than 90% of the revenue.
Toyota’s brand image is also not very strong in the sense that 1) Toyota brand is too general since there are many models in every big segment, 2) the recall problem creates the unreliable feeling to buyers in the same recall car models, and 3) Toyota’s small cars are more commonly used as Taxi which it makes the brand look cheap and not so prestigious, though it helps generate more selling volume. On the other hand, people would think of Honda more when they want to buy the passenger car. By having a lesser variety of cars, Honda is able to create more prestige in their brand image. The second recommended strategy is that Toyota should launch the marketing campaign to build trust for buyers in term of quality since it is manufactured in Thailand and it is not affected from the recall problem in the U.S. Moreover, if the volume is allowed, it is maybe a good idea to make some minor changes in taxi car, so that buyers would not feel that their car is exactly the same model as a taxi.
Honda already launched its Eco car named Brio in March this year and their sale of 5,000 units a month is considered very successful. However, Brio uses a lot of imported parts from Japan. Tsunami affects the shortage of their imported part and could not be manufactured for two month in April and May. In June, the capacity of Brio could run back at 80% capacity rate and planed to come back to normal production in September this year21. Honda’s Eco car is launching this year, pushing one step ahead of Toyota, in which Toyota plans to launch its Eco car next year. Nonetheless, due to Honda’s parts shortage problem, Toyota should take this opportunity to shorten the launching time of its Eco car.
The last recommended strategy is that Toyota should take their opportunities both AFTA and exchange rate to find lower source for parts and components. In that case, not only the COGS could be reduced, but also might be able to lower the price. In the meantime Honda uses more localization parts; it might take longer time for Honda to change their sourcing.
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