Toyota, long a marginal player in Europe, is becoming a fearsome market force as it applies itself to winning a bigger share of the Old World's roadways. Sales in Europe rose 20.6% in the first four months of this year, following a 10.4% leap in 2003, to 835,000 cars -- a dramatic performance given that the European market shrank by 1.3% last year. Those gains, fueled partly by the redesigned Yaris, pushed Toyota's market share in Western Europe to 5.3% in April, up from 4.5% a year ago, overtaking Mercedes and Audi and edging close to Italy's Fiat. "Every point Toyota gains is hurting the others badly," says Peter Soliman, partner at Booz Allen Hamilton's D?sseldorf office.
Toyota is determined to snare even bigger gains in Europe. Its goal is to up its market share there to 8% by 2010. The world's No. 2 auto maker spent the 1990s slowly acquiring a hefty 11% chunk of the $457 billion U.S. auto market. Industry experts say the Japanese giant has a good shot at becoming one of the leading auto brands in Europe and could well exceed its 8% target. "They are producing cars Europeans really want," says Garel Rhys, professor of automotive economics at the Cardiff Business School in Wales. "Toyota will become a major competitive threat in Europe now."
Soaring sales are also helping Toyota's bottom line. European revenues rose 35.3% in 2003, to $19.5 billion. Operating profit rose nearly ninefold, to $654 million. Behind the sales surge are investments in local design and production -- a strategy Toyota has followed with success in the U.S. Half the Toyotas sold in Europe are built at factories in Britain, France, and Turkey. In 2005, when a joint-venture plant with PSA Peugeot Citr?en starts operations, Toyota's local production will rise to 60%, nearly matching the level of local production in the U.S. By 2010 the company aims to sell 1.2 million cars in Europe, matching the sales levels of Peugeot and Ford Motor Co. brands. "Toyota's successes are real. People are taking serious notice, but no one has a good plan to combat it," says Booz Allen's Soliman.INCREASED EFFICIENCY
Thanks to its new design studio in southern France, near Nice, Toyota's recent models look distinctly Mediterranean. Its whimsical Yaris, which starts at $12,000, exudes Latin flair with its cute snout and peppy stance. "The first good result to come out of our effort was the Yaris," says Toyota Motor Europe CEO Shuhei Toyoda, one of the founding family scions. Toyota's new compact minivan, the Corolla Verso, at $25,000, matches the avant-garde styling pioneered by French and German rivals such as the Renault Scenic or Volkswagen Touran. Once-blah interiors sport higher-quality fabrics, dashboards, and knobs, while clean diesel engines are helping to power sales. "To me, Toyota has a dynamic and cool image," says Celine Massonaud, a 37-year-old decorator who lives outside Paris and who recently bought a gray RAV4 sport-utility vehicle with a sunroof. Toyota is even finding European buyers for its Prius hybrid.
European auto makers have more to fear from Toyota than a handful of hot models. While the Japanese powerhouse was figuring out how to build cars attractive to Europeans, it was also bearing down on costs to wield the efficiency needed to prevail in one of the world's lowest-margin auto markets. Toyota's management asked engineers to propose an innovative, cost-saving design for the Valenciennes facility. The result, a compact, star-shaped factory, was a first at Toyota. It features a production area with limited space to store parts or components. The 2 1/2 hours' worth of inventory on hand is lower than at any other Toyota factory in the world. "Some Toyota engineers said this plant could not work," recalls Leroy. "They said if we had any problem, it would stop the lines."
The daring design was a hit. By putting every production process under one roof -- from press machinery to welding, painting, assembly, and final quality checks -- Toyota cut the overall investment required for the plant by 40%, to $732 million. The thin inventory levels act as a warning when things go wrong, since backlogs or rapidly depleted stacks of components are immediately noticeable. Over three years, Valenciennes' so-called "lean design" has proven so successful that Toyota is basing its new joint-venture plant (with PSA Peugeot Citr?en) on it. Dozens of Czech workers have trained in France, preparing for next year's ramp-up in Kol?n, near Prague.
The design of the French plant is just one example of how Toyota is quietly but relentlessly increasing the standard of efficiency in Europe. European auto makers such as Fiat, Adam Opel, and Ford, which can never seem to get out of the red, will feel the squeeze.
One challenge still facing Toyota is burnishing its brand. Although the Japanese giant regularly ranks first in a variety of quality surveys across Europe, consumers don't perceive Toyota as the quality leader. "That's our No. 1 headache," says Toyoda. But as Europeans see more Toyotas on the street, opinions are changing. "The people I know who have one told me they were great and that they never had any problem even after two years," says Farhat Daouadi, a 49-year-old Parisian taxi driver who recently turned in his Renault for a blue Toyota Avensis Verso diesel minivan.
No question, European carmakers will give Toyota a tough battle for every inch of ground. Twenty years ago, many European auto executives trooped to Japan to learn how to bolster quality and productivity, says Pedro Nueno, professor at IESE's International Graduate School of Management in Barcelona. "Now they will have to run faster." Peugeot's factories already operate three shifts, and Volkswagen's Spanish unit SEAT recently won more flexible labor conditions from its normally intransigent unions. "There's going to be a reaction. It will be good for the automotive industry here," says Neuno. But the gain won't come without pain. By Gail Edmondson in Valenciennes, with Adeline Bonnet in Paris