Toyota Seeing Hybrid Sales Jump In Europe As Diesel Sales Diminish

Patience and persistence have paid off for Toyota’s hybrid sales in Europe.

Toyota Motor Corp. had taken a slow and steady approach to marketing its hybrid vehicles in a region that, not long ago, was more than half diesel vehicles in industrywide sales. In more than a year since Volkswagen’s “Dieselgate” scandal broke, Toyota is ready to report a leap in hybrid vehicle sales for this year.

The Japanese automaker is on track to selling about 40-percent more hybrids in Europe this year over last, reports Karl Schlicht, executive vice president of Toyota’s European division. Hybrid models should make for more than half its sales in that market by the end of the decade, he said.

Toyota had decided a few years ago to avoid taking on diesel cars in Europe. While demand for the Prius was increasing in the U.S. and other markets, it was barely being noticed in Europe.

Toyota had decided to take a persistent, steady approach to bringing its hybrid technology to that market – to be well positioned if market demand were to grow. That strategy was based on avoiding a battle over diesel vehicles versus hybrids, and to not pressure Toyota dealers to sell hybrids, Schlicht said.

“When you have a strategy driven by necessity and it’s doing the right thing for the customers and the world, it’s a very powerful force,” he said in a Bloomberg interview. “We kind of had to do it, and that made us focus.”

Toyota’s reputation for offering leading and dependable hybrid technology should help as European car shoppers look for more options; and as the European Union is clamping down harder on automakers. The EU will be tightening emissions targets to 95 grams CO2 per kilometer by 2020, and will be making emissions testing tougher to pass next year. The EU had been considering moving away from diesel vehicles long before the VW scandal to hit emissions reduction targets.

City governments are going in that direction. Athens, Madrid, and Paris have committed to phasing out diesel vehicles by 2025 to reduce air pollution.

Toyota doesn’t have the kind of market share in Europe that it has in Asia and North America – 4.3 percent share in Europe versus 24.1 percent share for Volkswagen in the first 11 months of this year, according to European industry association ACEA. The automaker might be strong enough to compete with European automakers transitioning over to diesel alternatives, including plug-in electrified vehicles.

Toyota’s market share could be climbing in a market that analysts see changing dramatically in the next few years as diesel sales diminish. UBS released a report this month forecasting that sales of diesel cars will almost disappear by 2025, being replaced by hybrids and all-electric vehicles.

Toyota dealers had balked at the idea of switching over to hybrids at first, Schlicht said.

“Our dealers at the beginning of this period were very much like, ‘You guys need more diesels,'” Schlicht said.

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Consumers were influenced by Toyota’s switch over to an all-hybrid marketing campaign. Car shoppers would need to take a test drive in a hybrid before trying out a diesel car.

Dealers were also pleased to see customers switching over to hybrids due to hybrids retaining a lot more residual value than diesel cars.

“We’re not anti-diesel, but the mindset has shifted,” Schlicht said about Toyota Europe’s dealers and distributors. “It’s moved on, and now they’re really into selling hybrids.”

Corporate fleets and leasing companies, which buy a larger share of new vehicles in Europe than other markets, are taking the residual loss seriously. They’re starting to talk to Toyota about increasing hybrid vehicles as a portion of their purchases.

Another sign that hybrids are taking off for Toyota in Europe comes from early orders of an SUV model. The newly introduced C-HR will be built at a Toyota plant in Turkey. Schlicht said that about 75 percent of the initial orders have been for the hybrid version, and the company won’t be offering a diesel engine option for the C-HR.

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