Playing Both Sides: How Toyota Is Rolling With the Trade War Punches
While it’s difficult to muster sympathy for giant corporations, the trade war current raging between the United States and China has left many stuck in an industrial limbo. Automakers want a bigger slice of the global market, but putting your eggs in either country’s basket will result in repercussions from the other.
We’re not saying this to promote some kind of commiseration for multinational companies; rather, it’s simply to remind everyone of how the auto industry has to conduct its business. Frequently, carmakers must play both sides. Toyota, already one of the world’s largest automakers, knows this better than anyone, and new documents shed light on some of the cloak-and-dagger aspects of maintaining its high-volume position.
Toyota currently holds a 14-percent share of the U.S. auto market. In China, the breakdown is closer to 5 percent, with the automaker losing ground to rival manufacturers based in Europe and North America. Due to the seemingly vast growth potential of the Chinese market, most automakers will do anything to get a little extra love from the country. But, as Meatloaf has repeatedly explained over the speakers of many a late-night dive, there is one thing they won’t do — and that’s screwing themselves out of the U.S.
Toyota is no different. U.S. buyers have been kind to the company, helping keep the factory lights on. But China represents an important opportunity to grow sales, and it can’t sit idly by. According to internal documents uncovered by Reuters, Toyota has hatched a plan on how to effectively play both sides.
“For Toyota to operate globally, we need to strike a fine balance between China and the United States,” President Akio Toyoda was quoted as saying in a March 19th meeting transcript. “It’s imperative to avoid making enemies.”
From Reuters:
According to the April 23 minutes, the Japanese automaker is making what one unnamed senior executive described as a “significant move to steer its focus to China” — a market where it is far behind industry leaders Volkswagen AG and General Motors Co.
Toyota declined to comment on its internal meetings.
Its pivot to China — one that many other global automakers are also making — has been made easier by a thaw in ties between China and Japan but complicated by Trump’s trade policies.
Criticize those policies to your heart’s content, especially if you’re not an American, but note that they have encouraged certain automakers to make sizable investments in the country and avoid moving jobs beyond its borders. This was, again, the case for Toyota. Last week, the company announced $749 million in additional investments in U.S. manufacturing — helping bump its five-year investment plan (established in 2017) up to a spicy $13 billion.
However, while Toyoda has professed his personal love for America in the past, the company does hold a few grievances. Chief among them is the Trump administration’s belief that some imported vehicles and parts pose a national security threat to the United States. The threat of a 25-percent import tax looms. Toyota, uncharacteristically, responded with condemnation, saying it sent the wrong message and calling it “a major set-back for American consumers, workers and the auto industry.”
“I just don’t understand why we are called a national security threat and it pains my heart,” Toyoda said after Toyota’s latest U.S. investment announcement. “One thing I would promise, no matter what direction the discussion takes us is that Toyota will not leave America.”
It also doesn’t want to abandon China. Toyota recently said it would establish a green (see: EV-focused) research institute with Tsinghua University and furnish the state-owned BAIC Group’s Foton unit with fuel-cell technology for public transport. According to the leaked documents, the company didn’t feel comfortable making the announcement before appeasing the United States with fresh investments.
Rumors and unnamed insider sources say Toyota hopes to improve Chinese sales by 10 percent annually over the next few years. Easier said than done; according to a 2017 poll from the BBC World Service, mainland Chinese residents hold the greatest anti-Japanese sentiment in the world, with 75 percent of Chinese respondents viewing Japan’s influence negatively. The United States fared slightly better at 61 percent.
We’ve already seen how anti-Korean sentiment hampered Hyundai and Kia auto sales within the region, so it’s reasonable to assume the Japanese would face similar headwinds — making it all the more important that Toyota carefully consider its global business decisions. China is an opportunity that’s too good for most automakers to pass up, and yet it’s also a quagmire of financial risk. That said, the most serious risk facing manufacturers could be not investing in the region at all.
[Image: Joerg Huettenhoelscher/Shutterstock]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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True, Toyota has invested a lot in their North American plants and they make many of their vehicles in the US. It is understandable Toyota's position they are in the middle of a trade war between the US and China.
As long as Toyota continues to meticulously build better cars for better prices than others, they'll do fine. Building a "brand" in China to rival what they have in the US, will probably never be in the cards. Everyone is just too good at building reliable cars now; as opposed to back when non Japanese branded cars tended to fall apart annoyingly often. And the Chinese aren't exactly predisposed to favor Japanese anything, for both historical, and current political, reasons. But still, Chinese consumers aren't all that different from anyone else. Good products, for good prices, sell.