Business / Corporate

Toyota surrenders sales crown to VW as threat of trade barrier looms

Bloomberg

Toyota Motor Corp. has lost its crown as the world’s best-selling automaker to Volkswagen AG, ending a four-year reign that saw emerging challenges ranging from the threat of U.S. trade barriers to slowing demand in China after a tax increase.

Worldwide sales for Toyota, including its units Hino Motors Ltd. and Daihatsu Motor Co. , rose 0.2 percent to 10.175 million vehicles in 2016, the automaker said Monday. That fell short of Volkswagen’s record 10.3 million cars, trucks and buses, up 3.8 percent.

Toyota lagged behind Volkswagen mainly due to the diverging fates in their largest overseas markets.

While Toyota was hampered by a broader U.S. auto industry slowdown, VW benefited from its growth in China and a tax cut that has stoked buying since 2015. The race between the two will hinge on the same two markets this year as Toyota responds to policies of U.S. President Donald Trump and VW faces decelerating demand in China as the tax reduction expires.

Since his inauguration, Trump has withdrawn the U.S. from the Trans-Pacific Partnership trade accord, reaffirmed a campaign promise to renegotiate the North American Free Trade Agreement involving Mexico, and met with automakers to persuade them to keep production within the U.S.

Toyota will invest $10 billion in the U.S. over the next five years, maintaining its pace of spending during the last half decade, joining other manufacturers with highlighting projects in response to pressure from Trump to create jobs in America. After criticizing Toyota’s plans to build a Corolla plant in Mexico, Trump rebuked Japan last week for sending the U.S. hundreds of thousands of cars from what he said were “the biggest ships I’ve ever seen.”

The automaker, based in Toyota, Aichi Prefecture, built its first U.S. assembly plant in Georgetown, Kentucky, three decades back in part to appease Washington during an era of icy trade ties. Since then, it has added factories in the country.

Last year Toyota built more than 1.38 million cars and trucks in the U.S., behind only General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV. Still, Toyota’s production was about 1 million vehicles short of its sales in the country. Any push for investment growth will come up against a U.S. auto market that’s likely to wane after a reaching a peak in 2016.

“The development of the U.S. market is set to decide if VW can stay ahead of Toyota this year,” Sascha Gommel, a Frankfurt-based analyst at Commerzbank AG, said by phone. “If the Chinese and European markets continue to be solid and the U.S. market weakens as I expect, VW might stay first in 2017 as Toyota has a larger exposure to North America.”

Toyota’s profit was more than double Volkswagen’s in the six months through September, according to data compiled by Bloomberg. Neither has reported earnings for the quarter ended Dec. 31.

The Japanese automaker’s deliveries in the U.S. declined last year, trailing industrywide growth, as demand for its Camry waned ahead of the introduction of the new generation of America’s best-selling sedan. The latest iteration of the model was unveiled at the Detroit auto show earlier this month.

In 2008, Toyota ended GM’s 77-year reign as the world’s largest automaker, holding on to the top annual sales spot until 2011, when it surrendered the title after production was disrupted by natural disasters in Japan and Thailand. It retook the lead in 2012 and kept the position through 2015.

For Volkswagen, taking the global sales crown marks the bittersweet culmination of an aggressive expansion that former Chief Executive Officer Martin Winterkorn kick-started 10 years ago. While surging demand in China and expansion of the upscale Audi and Porsche brands’ line-ups have propelled sales gains, the Wolfsburg, Germany-based giant’s growth hit a wall in September 2015, when the carmaker and U.S. regulators revealed that some of its diesel engines carried software to cheat on emissions tests.

Volkswagen’s namesake brand accounted for almost 6 million of the group’s global deliveries in 2016. The marque is targeting sales of 3 million cars this year in China, its biggest national market. In Germany, its second-largest market, the division is reducing its large leasing fleet for employees, which started to hurt new-car registrations toward the end of last year.

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