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Hotai Motor President Talks About Current And Future Operations

New car market in Taiwan should rise to 370,000 units in 2013

Oct 04, 2013 | By Quincy Liang

Justin Su (right) guides Hotai Motor to headier sales ahead.Justin Su (right) guides Hotai Motor to headier sales ahead.
Justine Su, president of Hotai Motor the Taiwanese agent of Toyota and Lexus, recently forecasted that the new-car market on the island may grow about 1.1% to some 370,000 units in 2013, as long as official policies can stimulate consumer confidence and thus spending.

Hotai registered revenue of NT$89.66 billion (US$2.99 billion) in 2012, up 4.3% from the previous year, pre-tax earning of NT$8.4 billion (US$279.9 million), a 13.5% YoY increase, and pre-tax earnings per share (EPS) of NT$15.4 (US$0.5), a record for the third consecutive year. However, over half of Hotai's earnings came from reinvested businesses.

In partnership with Toyota of Japan, Su said during an interview by the Chinese economic daily Economic Daily News (EDN), Hotai has successfully achieved 33.8% market share in 2012, but has been forced to invest abroad due to the small automobile market locally. Hotai has teamed up with Toyota to jointly develop the auto-accessory market in China, which, if successful, will be expanded into the Middle East, Europe and United States.

Kuozui, a Toyota-Hotai joint venture, exported some 67,000 Taiwan- assembled Toyota Altis sedans to the Middle East in 2012.Kuozui, a Toyota-Hotai joint venture, exported some 67,000 Taiwan- assembled Toyota Altis sedans to the Middle East in 2012.
Replacement Purchases
Due to stronger-than-expected demand last December (with 34,500 units sold), overall new-car sales in Taiwan totaled 365,871 units in 2012, slightly higher than originally forecast by Hotai (363,000 units). Despite economic uncertainties ahead, Su says, replacement purchases should continue to drive the overall market to some 370,000 units this year, in which Hotai aims to win at least a 34% share.

The devaluation of the Japanese yen against the U.S. dollar will help Hotai to negotiate more competitive vehicle prices with Toyota Japan, Su says, but Toyota's headquarters has finally decided to keep price hikes at 1% instead of the original 3%, already the best prices offered to Hotai to optimize market development in Taiwan. So Hotai already holds all the chips available to play in the Taiwanese car market.
Su says that new car sales can also be driven ahead if the Taiwan Transportation Vehicle Manufacturers' Association (TTVMA) succeeds in lobbying the government to subsidize buying cars older than 15 years.

About six million cars are owner registered in Taiwan, Su says, with about five million units in-use. So a 1% annual replacement generates demand for some 50,000 new cars, which can push the island's annual new-car sales volume to outstrip 400,000. Before 2008, annual old-car scrapping rate was about 5%, but dropped to only about 2.7% by 2012 due to unfavorable economic climate to create replacement purchases of only about 40% of the overall market.

Lower old-car scrapping rate causes heavier eco-pollution and traffic safety problems, also being critical to suppressing new-car sales in Taiwan, Su says.

Hotai Motor's New-car Sales (2007-2012)
2007 2008 2009 2010 2011 2012
104,800 79,300 111,600 101,500 119,400 123,700
Hotai Motor's Major Reinvestments
Kuozui Motors Ltd.

Local assembler of Toyotas. In 2012, the company produced some 173,000 Toyotas for domestic and export sales, generating annual revenue of NT$98 billion (US$3.3 billion).

Hotai Financing Co.
Hotai Leasing Corp.
In 2012, the two companies together had pre-tax earnings exceeding
NT$2 billion (US$66.7 million); while total assets outstripped NT$90 billion (US$3 billion).
Carmax Co., Ltd.

Designing and supplying OE Toyota accessories. In 2012, the company reported revenue of NT$3.6 billion (US$120 million), and announced tie-up with Guangzhou Automobile Industry Group Co., Ltd. (GAIG) to jointly develop auto-accessory market in China.

Source: Hotai Motor

More Auto Parts from Taiwan
“We have solid relationship with Toyota Japan and the partnership has been consolidated after the earthquake/tsunami in Japan and serious floods in Thailand (which cut Japanese automakers' parts supply chains), which forced the Japanese carmakers to divert orders to Taiwan,” says Su.

The increasingly close relationship between Taiwan and Japan has not realized sizable new investments on the island, Su says, but Toyota has begun to procure more auto parts from Taiwan for not only its factories in Japan, but also overseas assembly plants. Such expanding procurements should cut Toyota's costs and bring more opportunities to Taiwan's auto-parts suppliers.

Increasing Auto Exports
Closer ties between Toyota and Hotai are also increasing the export volume of Taiwan-assembled Toyotas by Kuozui Motors, a 70-30 venture between Toyota and Hotai.

In 2012 Kuozui produced about 173,000 Toyotas, including 67,000 units (50,600 units in 2011) for export to the Middle East and the rest for domestic sales; while the annual production volume is expected to rise to about 200,000 units, another record in company history. The Taiwan-produced Toyota Altis sedan is popular in the Middle East, hence driving export growth, Su says. The increasing export volume has helped Kuozui achieve all-time-high revenue of over NT$98 billion (US$3.3 billion) in 2012, despite the relatively minor car market in Taiwan.

According to Su, Kuozui's production capacity is filled currently, without room for another model for export in the near term, with the carmaker watching if demand can support long-term growth before making expansion decisions.

In addition to Kuozui's eye-catching sales, Hotai's other major reinvested subsidiaries also reported lucrative results to drive up the parent company's earnings, including Hotai Financing Co. and Hotai Leasing Corp. In 2012, the two companies had pre-tax earnings exceeding NT$2 billion (US$66.7 million), with total assets outstripping NT$90 billion (US$3 billion).

Hotai Financing is mainly engaged in installment-payment services to consumers of new and used cars, motorcycles, medical devices, machinery etc. The firm led such segment in Taiwan in 2004, offering in 2012 more than NT$50 billion (US$1.7 billion) in loans to consumers, up 25% from the previous year.

Hotai Leasing has been the largest auto leasing firm in Taiwan since 2002, winning last year 23.5% market share with a fleet of 25,000 cars.

Carmax designs, makes and supplies OE Toyota accessories. In 2012, the company reported revenue of NT$3.6 billion (US$120 million) and announced tie-up with Guangzhou Automobile Industry Group Co., Ltd. (GAIG) to jointly develop auto-accessory market in China.

The company's major product lines include parking sensors, in-car infotainment systems, and others. In Taiwan, about 70% consumers choose Carmax's products for new Toyotas.

In late 2012, Toyota Japan bought a 33.4% share in Carmax, through its Japanese subsidiary T-JACS Corp., aiming to jointly explore the auto-accessory business in China and globally, also planning to export more Taiwan-made auto accessories to Japan to raise revenue.

Su says that Carmax can look forward to lucrative opportunities if it can successfully differentiate product lines to develop sales in Toyota's overseas markets. Carmax is scheduled to launch Toyota-approved MVA (Market Value Accessory) branded auto accessories in six Middle East nations, Southeast Asia and China. In addition, Carmax is expected to develop high-quality, reasonably-priced Toyota auto accessories for Japan.

Overseas Deployments
As a general agent in Taiwan, Su says, Hotai has close cooperation with Toyota Japan, and has been aggressively expanding business in China. Hotai is very optimistic about Toyota sales in China, where it fully trusts Toyota's development strategies.
Su claims that Hotai operates 15 dealers and plans to add another four, including three Lexus dealers and one for Toyota this year.

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