Toyota shifts gear to challenge Ford

When Paul Philpott handed in his notice at Ford’s Brentwood headquarters ten days ago he must have known that he would not have been welcome in Essex for much longer.

His feet “did not touch the ground”, according to one source. He had committed the ultimate crime by moving to a rival (MW August 14). In an industry where people have often stayed loyal to a single manufacturer for 20 or 30 years, he has jumped from the market leader, where he was responsible for the UK’s two best selling cars – the Escort and Fiesta – to Toyota with a UK market share of less than four per cent.

Last year, Toyota sold 60,503 cars in the UK, while Ford sold 139,552 Fiestas and 128,760 Escorts. Since January, Toyota has taken a 3.36 per cent share of the UK market, compared with Ford’s equivalent share of 18.35 per cent – but while the Toyota share is growing, Ford’s is two per cent lower than in the equivalent period last year.

Although Ford insiders were surprised by Philpott’s decision to resign as brand manager for small cars, the decision to trade in his Escort, Fiesta and Ka ranges for a Carina, Corolla or Starlet should also be read in the context of the fundamental changes expected at Toyota within the next 12 months.

The Toyota Motor Corporation (TMC) has set a volume target of five per cent of the European car market by 2005 for its European franchises. The UK is under pressure to hit that target by the year 2000.

And, as of January 1, control of Toyota GB moves from the dealership group Inchcape to the Japanese parent TMC, when it takes a 51 per cent controlling stake in the franchise. The company says this is an administrative move but the expectation is that the change in ownership will lead to management changes and a greater focus on the product.

It will also accelerate a shift in car production at the company. Toyota currently has 15 different model ranges but it is changing this emphasis so that by the year 2000 just three models, the Starlet, Corolla and Carina – or their equivalent replacements – will account for 85 per cent of its UK sales.

At the moment the combined UK ad spend on the three models comes to 7.8m. This pales in comparison with expenditure on the 4×4 Rav 4, which soaked up more than 5m of Toyota’s UK ad budget last year.

“The Japanese take over management in the UK in January and we are expecting a complete overhaul of management and senior marketing personnel,” says one Toyota source. “There is the new Corolla but the RAV 4 has driven strategy until now.”

Into this situation comes Philpott as general manager of vehicle marketing, responsible for developing product strategy. Apart from the changing face of Toyota, the other attraction for Philpott could have been the opportunity to link-up again with marketing director Mike Moran, who was also previously at Ford. Moran retains control over Toyota’s 19m (ACNielsen – MEAL) advertising through Saatchi & Saatchi.

Philpott’s appointment follows what has been described as a “shuffling of responsibilities” within the Toyota marketing department “driven by the shift from being a niche to a volume player”. He will be responsible for market analysis for the full Toyota range and market research. He will also have an input on all product details, including pricing.

But he also has a broad management role advising on all aspects of the business. His experience of the UK small car sector will be used to advise on the shift to the three models.

“It is more than coincidental that TMC is taking a controlling stake,” says Moran. “It is clearly a move away from a distributor to a manufacturer-controlled environment. TMC will not have taken a controlling stake and then not want to do something with it.”

The most immediate impact will be seen in its ad spend, which will be increased from 19m to 30m according to Moran. “There is a programme of product renewal and innovation with a new Carina E at the end of this year and a new Starlet following at the end of 1998. And we will spend dramatically more on advertising and marketing.”

The latest developments at Toyota GB are a logical extension for the company, which was one of the first Japanese importers to set up shop in the UK. TMC first opened its manufacturing plant at Burnaston, Derby, in 1992 – the first step in converting the company from an importer restricted by quotas to a volume manufacturer in the European market free of restrictions.

It has subsequently invested 840m in the Burnaston site and an engine plant in Wales and will invest a further 200m in expanding the plant, producing the Corolla and increasing total capacity to 200,000 cars by the autumn of 1998.

“The nature of the company, its volume sales and who it is selling to – the fleet market – is changing,” says a Toyota spokesman. “We are moving from being a niche manufacturer to a volume player.

“We were an importer selling high specification cars at premium prices. We couldn’t do the volume even if we had wanted to. Now that we are not affected by quotas it is an entirely different proposition – we are moving away from being an importer to become a volume player.”

TMC is also searching for a site for another European plant to produce a small car – probably the next generation Starlet or new Carina. But no announcement is expected until at least 1998.

Earlier this year, TMC was forced to restate its commitment to Toyota GB after it was suggested the company would not consider the UK for its new plant because of the then Conservative Government’s objection to European Monetary Union.

The underlying message from Toyota is that it is growing. New plant and models in Europe, new management in the UK and freedom from restrictive quotas it has the opportunity to expand across the continent, where it has sold 191,000 cars in the first six months of 1997 – an increase of 10.5 per cent.

It is in this context that Philpott’s decision to turn his back on the biggest selling small cars in the UK starts to make sense.