Toyota Fears Hyundai More than GM

   Toyota Motor Corp. is looking more likely to cruise past General Motors Corp., the world's largest carmaker, in unit production and sales next year. The main reason is that its US rival, which is facing a sales slowdown in its home market, will next year close a number of assembly lines. Toyota, however, is not gloating. It fears that ill feeling might arise in America if it really overtakes GM, which is both a flagship company in automaking and a national symbol. At the same time, a growing view within Toyota is that its main rival is no longer GM but Hyundai Motor Co. of South Korea.

GM Spurned Toyota's Technology

   Toyota too has been anxious about GM's disappointing performance of late. For the past 20 years or so, the Japanese company has sought cooperative relations with GM, and acted accordingly. It was against this background that Toyota established a 50-50 joint venture with it, New United Motor Manufacturing, Inc. (NUMMI), in California in 1984. Toyota saw this move as a way to hedge against hostility in the US, should it prove too tough a competitor for GM in future years.
   So in recent years, Toyota was keen to jointly research and develop electric/gasoline hybrid cars as well as fuel cells with GM. But in 2003, GM chose to go its own way in development of hybrids. Toyota's better technology was used by Nissan Motor Co., Ltd. and other companies in the hybrid race, boosting the pace of development, with the result that GM was left behind in all areas. Some executives of Toyota have commented that GM spurned Toyota's technology-sharing proposal because its engineers were too bent on developing independent capability. They suggest GM was motivated by reasons of face, and the company needed to be saved from its own bureaucratic culture.
   At a May, 2005 press conference, Toyota President Hiroshi Okuda indicated that he still wanted to help GM, citing hybrid car technology as an example of what Toyota could provide if a technological tie-up between the two companies was realized.

Toyota's Absorption of Fuji Heavy is Also a Helping Hand for GM

   In October, Toyota agreed to take a stake in mid-ranking Japanese carmaker Fuji Heavy Industries Ltd. (Fuji Heavy), causing the company behind the Subaru brand to end its capital and management tie-up with GM. With a roughly 20% stake in Fuji Heavy, GM will sell 68 million of these shares (8.7% of Fuji Heavy's total issued stock) to Toyota for 35,400 million yen, and the remainder (11.7%) will be bought back by Fuji Heavy on the market. This is tantamount to Fuji Heavy leaving the GM group and becoming part of the Toyota group. Fuji Heavy's corporate value is thought to rest on its technological strength and innovativeness, and it is assumed these are the assets Toyota was after. But in Japan many observers believe Toyota's major aim was to help GM out of its cash flow difficulties.
   Meanwhile, as GM fades as a competitive threat, Hyundai Motor is looming on the horizon. From January through September of this year, the Korean giant's worldwide sales totaled 1.8 million units, an increase of 11% year on year. This translates into sales of more than 2 million vehicles per year, ahead of Mitsubishi Motor Corp. With Honda Motor Co.'s global sales for this year expected to be about 3.4 million vehicles, Hyundai now has Japanese carmakers firmly in its sights.

   It is on a roll in overseas production too, posting a year-on-year increase of 44.7% to 450,000 vehicles between January and September. In the fast-growing Chinese automotive market, South Korean carmakers' share was almost nil in 2000. In 2004, European automakers dropped share to 31.3%, American and Japanese rivals grew to 12.9% and 28.2% respectively-and Hyundai and other Korean firms bagged an 8.3% slice. In January through August, the figures were 20.6% for the Europeans, 12.9% for the Americans, 29.7% for the Japanese and 11.5% for the Koreans. Looking at January to October, South Korean companies are expanding share at an increasing pace. And not only in China. Hyundai aims to beef up operations in North America and expand globally.

Own Parts Suppliers Make Hyundai Bigger Threat than Honda

   In the late 1980s, Hyundai entered the North American with its 'Pony' compact car, and sales boomed. But it had to withdraw the model because of rusting and other quality problems. Learning from this mistake, Hyundai has focused on improving car quality, with the aim of surpassing Japanese standards. Consequently, Toyota now believes that Hyundais are becoming serious competitors for Japanese cars. What most worries Toyota is Hyundai's prices. The Azera, the most expensive Hyundai model, is a large sedan with a 3800cc V6 engine. It is more roomy than the S-Class Mercedes-Benz or BMW 7 Series and boasts comprehensive safety devices, yet it costs less than 30,000 dollars. This is the price range for the least expensive Japanese luxury models, such as the Toyota Lexus and Honda Acura. Hyundai is well positioned to eat into this segment of the market.
   Having dismantled and thoroughly analyzed cars from all over the world, Toyota has pinpointed only Mercedes-Benz and Honda as principal rivals. But Hyundais are rapidly improving in terms of durability, use of advanced electronics and design. Moreover, they are amazingly low-priced considering their performance.
   Another concern at Toyota is that Hyundai has its own parts suppliers. Honda does not include suppliers among its affiliates, but procures parts mostly from Toyota-affiliated companies. It is unthinkable that such Toyota-affiliated suppliers would form an alliance with Honda to develop a completely new model that might compete with Toyota. But Hyundai, to Toyota's discomfort, is not bound by such restraints.