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Insight: Dealer profits rise despite Toyota dip

After 12 years of consecutive sales growth, Toyota GB retailers have seen their new car volumes dip 4% this year.

Like several rival carmakers, Toyota claims this is down to its decision to withdraw from channels where cost of sales is too high, such as short-term fleet business. It points to the positive news story on retail sales, which have grown 1% in a sector down 3.8%, and says that, over the past six months, its share of the retail sales has risen above 6%. Next year, Toyota hopes to hit 6% for the whole year, up from 5.5%.

New managing director Miguel Fonseca, who joined from Toyota Spain in September, has spent most of the last three months visiting retailers. He acknowledges their concerns over sales volume, which mirror the concerns of the retail business in general, but says profits have improved as a result of the action Toyota has taken.

“Retailers’ total sales are down but their profits are up because they have to give customers less incentive per unit to sell these cars,” Fonseca says. “Prices are closer to list in every segment and we want to keep it this way.”

Network return on sales has risen 13% year-on-year to 1.4%, which Fonseca says is “good, but not enough – the network should be averaging 2% with the upper quartile above 3%”.

Within the network of 191 dealers, Toyota has 12-14 that are loss making. Most are new dealers that have low volumes and small aftersales contributions or that have made recent investments in the showroom. A few are in metropolitan areas. Toyota is looking at its competitors to see how it can work with its franchises to address profitability issues in areas such as London.

“We are confident of turning all into profitable dealers within one to three years,” says Fonseca. “If the franchise follows our steps – volume, service to customer and brand – then they should be profitable.”

He adds: “The investments made by Toyota GB and the retail network have been with volume growth in mind. This will push profits on within this focus of retail without incentives.”

#AM_ART_SPLIT# Fonseca enjoyed a successful time in Spain, which he attributes to the strength of the network. When he joined, Toyota’s market share was 1.5%, network return on sales averaged 0.9% and each dealer was selling 250 cars on average.

Five years later, market share was 5%, ROS was 2.5% and sales per site was 750 cars. During that period he oversaw the move from private distributor to company owned.

Fonseca claims his focus is on “customer first, retailers second and Toyota third”. He adds: “We can only be successful if dealers are successful. We start with their success and cascade that to our business.”

Fonseca believes his biggest challenge in the UK is to energize the brand ready for new products, including launches into new niches, for both Toyota and Lexus.

“We have the conditions to improve competitiveness and increase our share of the market,” he says. “We have the ability to rejuvenate products with a pace that is faster than competitors.

“The difference between winning and losing is in the detail – how things are implemented. One per cent can be the difference between failure and success. The question is: how can you gain 1%?

“Is it marketing, brand and CSI? No. It’s down to process, tools and mechanics to properly interface with the customer.”

Toyota is committed to reducing its emissions output to 140g/l by 2009, as part of the voluntary agreement signed by carmakers in Europe. It requires more hybrid models, new cars with lower emissions, including new niches, and reducing emissions on existing products.

“The industry convinced the legislators that 140g/l was acceptable as a step towards 120g/l in the future. If manufacturers fail to hit 140g/l by 2009 then the legislators can impose legislation for 120g/l,” says Fonseca. “Toyota will get there.”

Harmonize tax

European legislators should turn their attention away from fiddling with Block Exemption to focus on the myriad of tax regimes across Europe.

Miguel Fonseca, like many of his peers, believes Block Exemption has not achieved the aims laid out by the European Commission. “A fairer approach would’ve been to harmonize taxes around Europe,” he says.

“I hope that there will be significant steps taken within the next 10 years.”

Fonseca claims tax harmonization will create more competition across Europe. In contrast, whatever happens with Block Exemption, carmakers will adapt. “We can always turn things into our advantage from a competition point of view,” he adds.

Miguel Fonseca CV

2006-present Toyota GB managing director
2001-2006 Toyota Spain
1998-2001 Fiat Auto Portugal president and chairman
1989-1997 Ford Portugal, Ford of Europe, Ford Spain managerial posts
1987-1989 Citroën Portugal

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