Weak oil prices still biggest threat to regional auto market
ANYTHING AROUND $ 80 A BARREL ‘ COULD BE A SPEED- BREAKER FOR DEMAND GROWTH’
The sub-$ 100 ( Dh367) a barrel oil prices represent the biggest speedbreaker for the Middle East’s automotive sector going into 2015, according to a top official at Toyota Motor Corp — the world’s top car manufacturer.
“The region had performed exceptionally well in the last four years and the $ 100 plus a barrel price was the condition — actually a very good condition — for that,” said Takayuki Yoshitsugu, Chief Representative for the Middle East and North Africa at the carmaker. “At the prevailing $ 80 a barrel or thereabouts, it will put growth for the auto industry in slow speed.
“This factor more than the [ political/ civil] situation in some of the regional territories has the biggest bearing on prospects.”
Despite that, Toyota officials believe there is still a lot happening in the six Gulf markets to provide them with some growth possibilities through 2015 and beyond. For Toyota, the GCC makes up around 90 per cent of the 730,000 plus units that it sells in the Middle East.
“Carmakers will be focusing even more of their energies on buyers in the Gulf, whether it be through model launches or focused marketing strategies,” said Yoshitsugu. “For Japanese manufacturers in particular, that also means using the soft yen to optimum advantage.”
The yen is edging closer to 120 to the dollar, giving a massive pricing boost for Japanese imports. But for Toyota, the current yen situation puts them in a bit of a bind.
After the 2011 tsunami that struck Japan, its auto industry had been relying on a widespread manufacturing presence outside of the country to less- en its dependence on any one market for its sourcing needs.
“Currently, more than 50 per cent of our volumes to the Middle East are from plants outside of Japan and were we had made massive investments. So, we cannot immediately shift production to plants in Japan because the yen is now much lower.
“But, if we reach maximum plant utilisation rates in these overseas plants, a top priority thereafter would be to add new capacities in Japan and, hopefully, make good use of a favourable currency situation in the future. But it’s not something that can be done shortterm.”
As of now, Middle East sales make up 8 per cent of Toyota’s overall volumes, with those in North America leading the way with a 27 per cent share and followed by its own home market with 17 per cent. In the 12 months to March 31, 2014, it produced more than 9.1 billion units. That was enough to confirm it as the top automotive manufacturer and ahead of Volkswagen Group.
But high production output does create problems of another sort. In the last four years, the carmaker had to go through many recall programmes, including one last month for 1.67 million units and in recent days, of 423,000 plus units of the Lexus model for a potential fuel leak hazard. In fact, few of the major volume manufacturers have been able to get away with not having a recall issue in recent years.
“But the trust in the Toyota name built up over decades ensures that it has not suffered a sharp erosion. In the Middle East, for instance, the feedback we received was that the Toyota badge retained a core set of values and which were intact even post the recalls. This had to do with 60 years of offering what vehicle owners wanted in Middle East markets.”