Can Toyota Squeeze into Europe's Passing Lane?

On Apr. 10, French auto maker PSA Peugeot Citroen's chief executive, Jean-Martin Folz, and his counterpart at Toyota Motor Corp. (TM ), Fujio Cho, will co-host an event that Cho hopes will be a milepost for Toyota's quest to conquer the European market. The pair will break ground on a jointly owned $1.35 billion factory in Kolin outside Prague. Starting in 2005, the plant will use a single platform to roll out 300,000 minicars a year, all priced under $7,500 and carrying the Toyota, Peugeot, and Citroen badges.

The factory is the latest effort in a long struggle by Toyota to make a big footprint in the European market. Toyota's strategy mirrors its plan in the U.S.--to Europeanize design, production, and marketing, so Toyota is seen as just another European car, like Opel or Volkswagen. The potential payoff is huge: At 300 million, Western Europe's market is bigger than the U.S., and it rises to 400 million if one throws in Eastern Europe, a promising market for the cars made in Kolin.

Toyota is still a small-time player in Europe, with 4% of the market. But it is much more successful than its Japanese counterparts. Since quotas on Japanese car imports to Europe were eliminated in 2000, their collective market share has actually shrunk 10%. Toyota's sales rose 5.5% this year, bolstered by new cars designed by Europeans for Europeans.

Among Toyota's best European sellers: the new $13,200 Corolla hatchback and the $8,600 Yaris compact minivan. The Yaris has captivated the finicky French; sales in France surged 64% in the first two months of the year. Both the Yaris and Corolla were conceived at Toyota's design studio near Nice. Moreover, a third of the vehicles Toyota sells in Europe are now assembled there, at factories in Valenciennes, France, and Burnaston, England. That percentage will rise when the Kolin plant opens.

Compared with other Japanese makes, "Toyota has succeeded better in putting out products the Europeans really want," says Garel Rhys, professor of motor industry economics at Cardiff University. The company has invested $4 billion in Europe--and since 1998 has lost close to $1 billion. But Toyota says it will make money in 2003; it is aiming for a market share in the double digits. "For any global player to succeed, it must be successful [here]," says Takis Athanasopoulos, Chief Operating Officer of Brussels-based Toyota Motor Europe. The local players aren't sweating yet. But they're keeping a close watch on the Japanese champion.

By Christine Tierney in Frankfurt

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