Toyota in hybrid switch as CEO warns on diesels
Toyota Ireland CEO warns on dangers of ‘dirty diesel’ imports as he oversees switch to greener models, writes Michael Cogley
FOUR out of every five Toyota cars sold in Ireland next year will be hybrids as the company moves towards a diesel-free future, the head of the manufacturer’s Irish arm has said. In an interview with the
Sunday Independent, Steve Tormey said that overall sales are likely to dip slightly next year to around 14,000 — that’s due to the high level of used imports taking the place of new car sales.
In March Toyota announced it would end the production of diesel cars this year. Tormey said that the company will sell a “handful” of diesels in 2019 and that around 80pc of all sales will be hybrids, up from around 50pc this year. “The reason why the mix will grow so strongly next year, is because we’ll have five new hybrids effectively, including a new Rav4 and the return of the Camry, last seen in Ireland 14 years ago,” he said.
He also called on the Government to tackle the high level of imports.
He said that vehicles being brought in were predominantly diesels and that they would create an environmental problem for the taxpayer in the future.
Tormey also said that the controversial personal contract plans (PCPs), a form of hire purchase vehicle finance for individual purchasers, were being sold responsibly.
TEN years ago Toyota Ireland CEO Steve Tormey was shipping petrol cars over to the UK as best he could after the government of the day dealt a near-fatal blow to the less-economic fuel type with a CO2 tax twist. The move, which incentivised diesel vehicles over petrol, left Irish dealers with “yards full of cars and no buyers for them”. Fast forward to today and an entirely new threat, almost mirroring the deal that was struck in 2008, is putting significant pressure on Ireland’s car market.
“Ireland is an outlier in that, although we don’t manufacture cars, we’ve found ourselves as the most ‘diesel-ised’ market in the whole of Europe — which doesn’t seem to make a whole lot of sense,” Tormey says across the boardroom table of Toyota’s headquarters in southwest Dublin.
“Even though unemployment is around 5pc and GDP is booming, the car market is not doing well. People are buying cars but they’re not necessarily new ones.”
He is, of course, speaking about the surge in popularity of second-hand cars in Ireland, typically diesel and usually originating from the UK. Since the Brexit referendum two years ago, the drop in sterling has made shipping in cars from Britain very attractive.
More than 92,000 used cars were registered in Ireland for the first time last year, compared to 127,000 new cars being sold, according to the most recent stats from the CSO. This year also paints a relatively bleak picture, with numerous predictions suggesting that used car imports could eventually overtake new sales.
“It’s incredibly difficult,” Tormey says. “The dirty diesels that are being imported from the UK are being brought to Ireland because they can’t sell them there, because they’re not getting the price over there, so they might as well sell them here.
“That’s not good business for anyone and it creates a problem down the road. At some stage, Ireland will have to clean up its fleet — who’s going to pay for that? At some stage, the taxpayer is going to pay for that. It will be the responsibility of the government of the day to clean up this car park of dirty diesels,” he says.
In July, Finance Minister Paschal Donohoe stated that there would be “no significant change” to the way motorists import cars after Brexit. With no help on the way from central government, Tormey says that Britain’s exit from the EU can either address the issue or make it much worse.
“If sterling went to parity that would be disastrous news for the Irish state and us,” he says.
The Trinity graduate says that this mass importation is also resulting in a heavy tax blow to the State.
“The Government should be very concerned about this, because if you look at the average vehicle registration tax [VRT] and Vat take for a new car, it’s around €8,500, while for an imported one it’s only around €2,500, because the Vat would have been paid in the UK,” he says.
While customers are more focused on the value imports offer, rather than concerns over VRT and the impact of diesel on the environment, dealers have had to change their focus and many have transformed their businesses to offer an increased level of services.
“Dealers have strengthened their offering so that they’re not longer just reliant on the profit that they made from the car,” he says. “The socalled value chain from used cars to finance and other after-sale services, they have had to put a great emphasis on that because the car numbers haven’t been as good as they would have been in the past.”
Tormey has never been a petrol head, despite being in Toyota for more than 20 years now.
He entered the company after being repeatedly courted by his late father-in-law and founder of Toyota Ireland, Dr Tim Mahony, whose portrait hangs in the room.
“He asked me a few times to come in and I said no, but eventually I said yes,” he says of his switch from a job at Guinness to the car business.
“The motoring industry is such an interesting one because it’s changing all the time. There’s always something. Your mindset should be that you’re never happy, because there’s always a problem to solve.”
Not only has the industry changed but so too has Toyota. Once the staple of the taximan and the farmer, in the form of the Avensis and the Land Cruiser, Tormey now leads a company that will enter into 2019 with only a “handful” of diesels remaining and a heavy focus on hybrids. It follows a decision made in Japan to end the production of diesel cars this year and focus heavily on hybrids.
“It was the National Ploughing Championships two years ago that sold hybrids to me,” he says. “We had our hybrid cars down there and I noticed a lot of the farming community wanted to know more about them and their benefits.
“There is an appetite out there for the hybrid car, and there’s no compromise in rural areas at all. If you think about it, it’s a self-charging hybrid and Ireland is really well suited to them because if you think of the hills here, you have regenerative braking producing power for the batteries.”
He concedes that the dramatic switch may have caused the company to lose some customers, but he maintains that they have gained new ones.
“For every person that says ‘I have to drive a diesel car’, we have another customer saying ‘I’m not driving a diesel car anymore’. We’re not saying goodbye to too many customers, but we are saying hello to a number of others.”
In 2019, Tormey plans to sell around 14,000 cars with about 80pc of them sporting hybrid capabilities, up from 50pc this year.
“Most of the remainder will be one-litre Yaris and Aygo, which are small and non-polluting. The reason why the mix will grow so strongly next year, is because we’ ll have five new hybrids effectively, including a new Rav4 and the return of the Camry, last seen in Ireland 14 years ago.”
A sizeable portion of those sales are likely to be agreed through PCPs or personal contract plans. The controversial payment schemes have garnered plenty of attention in recent times, sparking probes from the Competition and Consumer Protection Commission and the Central Bank.
Over the last five years, the volume of PCP loans in Ireland has soared from 14,000 to 126,000, according to an overview from the financial watchdog.
Under PCPs, buyers pay a deposit and make monthly repayments for an agreed time — typically three years — at the end of which they can return the car or buy it at a “guaranteed minimum future value” that is agreed with a dealer at the start of a contract.
Alternatively, buyers can take out another PCP on a new car, putting the difference between the guaranteed minimum future value and the market value of the old car towards a new deposit. This assumes that the value of the car will be higher than the guaranteed minimum value.
Both the Central Bank and the CCPC have raised concerns about the way in which the loans are sold and indeed the market’s exposure to international risks, such as a dive in sterling.
Earlier in the year Toyota parted ways with Bank of Ireland as its financial provider, instead entering a joint venture with Toyota Financial Services. This gave it the muscle to compete with other manufacturers such as Volkswagen and Renault, which boast their own international banks.
“It will be more difficult for the likes of Bank of Ireland to compete on new car sales. I think you’ll find that more of the brand-owned banks will prevail in the future,” Tormey says.
“I think PCPs are being sold responsibly. I know that’s definitely the case with our situation. We’re not selling in a way that the customer doesn’t understand what the product is. You have to be careful with the residuals you guarantee in the future.”
The Toyota chief, who has been heading up the business for just under four years now, did highlight potential problems with the early PCP deals. He said that due to the direction in which diesel has moved, numerous brands and dealers may have given too high a guaranteed minimum value on their deals.
“Hypothetically, if Toyota continued selling diesels into 2019 and we had to price what that car would be worth in 2022, the residual value we would write would be significantly lower because we don’t believe that there will be value left in that car, but that’s just us,” he says.
In 2010, he spent two months in Harvard, doing a two-month executive education course, one he dubbed a “condensed MBA”.
The course followed shortly after the “scary time” in 2009, where he was hit with a double-blow of an economic crash and a rapid reduction in the value of his fleet.
Tormey maintains that those days are now behind him and while the future is laden with challenges, his excitement about the industry is clear.
While there is plenty of chatter about electric vehicles and Ireland’s readiness for them, he’s already moved onto the next big thing — hydrogen, a fuel type that produces nothing other than water from the exhaust pipe.
As Tormey says, the motor industry is a business that is always changing.