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Automotive Industry

Planning for the Worst, Hotai Comes Out on Top


Taiwan?s auto market is adrift in the doldrums. Yet one brand, Toyota, is claiming nearly a third of new car sales. How has its Taiwan representative, Hotai, managed to buck the trend and rise to top?



Planning for the Worst, Hotai Comes Out on Top

By Ching-Hsuan Huang
From CommonWealth Magazine (vol. 379 )

After trudging onward yet upward for nearly a decade, Taiwan’s auto market finally returned to the heights of over 500,000 annual auto sales in 2005. Then, within the space of a single year, the nation’s car sales tumbled back down to 366,000 vehicles in 2006. A decline of this magnitude is roughly equivalent to the production volume of one or two Taiwanese automakers. Now, with forecasters predicting automobile sales this year to be only 85 percent of last year’s volume, or less than 320,000, it appears Taiwan’s auto market remains adrift in the doldrums.

What is astounding is that practically an entire third of these 320,000 vehicles are likely to be Toyotas, while the remaining 200,000 sales will be divided among almost ten other auto brands.

Toyota has already racked up 64,000 sales to grab a 31.5 percent market share in the first seven months of the year. Its share of the market is even greater than those of Nissan, Mitsubishi and Mazda combined.

Burning with the robust spirit of a winner, Toyota has brought its passion to Taiwan’s long-frigid auto market. The absolute dominance displayed by Toyota in Taiwan is rarely seen in any other market in the world.

Hotai Motor Company, Toyota’s general sales representative in Taiwan, celebrated its 60th anniversary in August. Though Hotai decided to keep the event low-key, Toyota’s president Katsuaki Watanabe made a point of visiting Taiwan and making a personal appearance at the celebration.

The reason Hotai has been able to exceed Toyota’s expectations by claiming over 30 percent of a single market is that its approach has always been to make preparations ahead of time no matter what changes take place in the auto market.

“In the best of times, make plans for the worst, make the best preparations you can,” says Hotai president Daniel Chang, “because it’s really impossible for you to predict just how things will change.” For example, Hotai failed to anticipate last year’s deep plunge in auto sales, yet it had in fact made thorough preparations before hand.

Long-time auto industry observer and consultant Chiou Wen-fu cites the physical principles behind a spinning top to describe Hotai’s approach. While a top is spinning rapidly, it will advance smoothly in a fixed direction until a problem occurs and it begins to wobble. However, a champion top spinner needs simply to yank the top a few more times with its string to help it resume its smooth and rapid spin.

Yanking the Top Before It Wobbles

This is the same way Hotai takes care of business. Invariably, before even the most minor teetering appears, the auto sales company gives another yank on the string that keeps the top upright. While Hotai is working constantly to enhance its corporate health and boost revenues, it is also stretching out the different tentacles of the business group it heads.

In 1997, new car sales in the Taiwan market fell from their peak of 570,000 units to 480,000. This market contraction caused Hotai’s revenues to slide from over NT$60 billion to less than NT$55 billion. Although this drop in income was not considered major, Hotai nonetheless announced the commencement of its second period of company-building, and instigated a series of corporate structural reforms.

The goal of these reforms was to determine “how to make Hotai grow further, when confronted with a market like Taiwan’s, experiencing fairly major changes,” says Chang.

Reform Factor One: Establishing a Complete Product Line

The first key step in instituting these reforms was the development of a complete product line.

Toyota’s line of cars in Taiwan looked far from complete back in 1997. Offering only two sedans, the Premio and Tercel, it was hardly a match for the Mitsubishi product line at China Motor Corporation. Seeing the meager offerings in its showrooms, Hotai set in motion plans that required the introduction each year of one new model capable of catering to the needs of a large segment of car buyers. Then, in 2001, it started putting one new model on the market each year, first the Altis, and then the Vios, Camry, Wish and Yaris.

Now, each one of these models, without exception, is the best-selling car in its class.

Why was it that as soon as Hotai made its play, it was able to become the market leader?

Reform Factor Two: Including Dealerships

Another key to the success of Hotai’s reforms was the inclusion of its dealerships, its first line of contact with its customers. It set out to improve the business health of its dealerships as well as directly strengthen the services they provide to customers.

Hotai instituted a system of centralized management to achieve its reform goals. All of the dealerships’ information, including vehicle sales figures, parts management data, customer service information and even financial figures, are compiled for processing and analysis by Hotai.

Hotai’s information management department is staffed by over 60 personnel. This single department employs even more people than your average information services company. These computer experts are working continuously on the development of Hotai’s own computer management systems and provide assistance to dealerships in setting up their computer systems.

With all of this information stored in its computer system, Hotai is able to make routine comparisons of the performances of its dealerships. It focuses on such dealership information as interest rates on bank loans, capitalization ratios, vehicle sales data, and, even more importantly, the rate of vehicles being brought in for servicing and the quality of after-sales services.

Having established this mutually beneficial symbiotic structure, Hotai has not only improved the financial structures of its dealerships, but also enhanced the quality of the services they provide to their customers.

In 1997, before the introduction of Hotai’s reforms, its dealerships as a whole suffered losses of NT$170 million. By 2003, however, they had managed to post combined profits of NT$2 billion. Once they were making profits, the dealerships were then able to comply with Hotai’s demands that they boost their investments in sales points and personnel. This led to a direct increase in Toyota’s sales and marketing visibility in Taiwan.

Reform Factor Three: Expanding Peripheral Businesses

In the end, despite its success in securing a larger share of the auto market, Hotai was still unable to ward off the general sluggishness stifling the auto market. Yet, businesses need to grow, and Hotai is no different. Its solution was to diversify its operations by developing peripheral businesses related to the auto market.

“As a business, if there’s nothing you can do when you’re faced with a contracting market, how do you meet the expectations of your investors? One moment your stock is at NT$80, the next it’ll drop to NT$18.” In Chang’s opinion, there is only one solution: “Your core business has to be moving, and your peripheral businesses have to move too.”

Therefore, in 1999, Hotai began introducing a succession of companies related to the automobile business, including the auto leasing company Hotai Leasing Corporation, the auto financing company Hotai Finance Corporation and the auto parts and accessories store Carmax. It still has plans of entering the automobile auction business.

With its eyes on the greater growth potential of the Chinese auto market, Hotai has taken on a new role by operating dealerships for Guangzhou Toyota Motor Company and FAW Toyota Motor Sales Company. It now runs eight dealerships for these companies. Hotai posted over NT$100 million in profits from its investments in China in 2006.

After five years of structural reform, Hotai watched its profits nearly double in 2003 from NT$1.15 billion to NT$2.15 billion. Having made all of the necessary preparations for its core auto sales business and its other industry-related businesses, Hotai earned profits of NT$3.5 billion in 2006 despite the deep slump in the auto market that year.

Having just pushed its market share to over 30 percent, Hotai declared at its 60-year anniversary party that it would further boost its market share to 40 percent by 2015. Hotai has raised its target once again because it intends to avoid becoming the hare in the fabled race with the tortoise. Chang says, “Otherwise everyone would think that since the stock price is not bad and profits stand at NT$3-4 billion, things are very stable. If everybody were to be satisfied simply with things being that way, we’d be in trouble.”

Hotai is again prepared to whip out the string in its hand in order to keep its business spinning along at its rapid clip.

Translated from the Chinese by Brian Kennedy

Chinese Version: 和泰獨霸市場 全靠未雨綢繆