The rising popularity of SUVs and minivans in Europe is prompting automakers to change their strategies for some traditional passenger cars.
In the latest move, Toyota is making its new Avensis more upscale than the old model to combat a general malaise in Europe's upper-medium segment.
The Japanese carmaker wants the new version to rival lower-luxury cars, win more fleet and lease sales, and achieve higher margins. But it has plenty of company.
In the last five years, the market share of upper-medium models has fallen from 14.9 percent of the European light-vehicle market to 11 percent. In unit sales, the drop has been from 2.5 million to 1.96 million.
"The segment has become too fragmented with the arrival of minivans and sport-utilities,'' says Colin Couchman, senior analyst at DRI Automotive in London. "The main players in this segment could be faced with flat sales in the near future.''
Last year, the No. 1 upper-medium player was the Volkswagen Passat, the class leader with sales of 338,000 units. It was followed by the Ford Mondeo and Renault Laguna. Toyota sold 109,800 units of the previous-generation Avensis for seventh place.
Toyota isn't planning for major sales growth with the new Avensis, which it builds in Burnaston, England. The automaker expects it to sell about 130,000 units annually, peaking at 140,000 in 2005. The car's best year was 129,000 units in 1998.
But the upper-medium segment is changing, with trends toward a stronger presence in the fleet and lease markets and more diesel engine models.
"The segment may not grow or even remain stable, but all the players are very active,'' says Ronald Spaenjers, deputy general manager of Avensis marketing management at Toyota Motor Europe.
Next year, Peugeot will launch a new version of the 407, while VW's next-generation Passat is due in late 2004 or early 2005.
"Upper-medium cars are moving more toward premium models because of improved quality, higher technical specifications and equipment," says Spaenjers. "That makes these models more interesting for carmakers, because they generate higher margins."
Toyota claims Avensis quality matches lower-luxury models such as Audi's entry-level A4 or the Mercedes-Benz C class.
The Avensis offers either a direct-injection common-rail diesel or gasoline engine with direct-injection technology.
But Toyota also is focusing on low-cost ownership and best-in-class customer satisfaction with the Avensis. Compared with the old model, Toyota says it has cut accident repair cost for a typical frontal crash by 55 percent, from 3,000 euros ($3,175 at current exchange rates) to 1,300 euros ($1,375 at current exchange rates). It also claims the Avensis has the lowest number of service maintenance hours in its class.
Buyers of upper-medium cars now want the same powerful engines and levels of equipment as buyers of lower-luxury models such as the BMW 3 series and Mercedes-Benz C class, Spaenjers says.
Fifty-five percent of Europe's upper-medium segment models are sold as fleet or lease cars. In the United Kingdom, up to 70 percent of sales are to fleets.
Analysts expect Europe's upper-medium fleet share to rise to 60 percent within three years. Toyota's fleet sales share with the Avensis has been just 35 percent; Spaenjer says Toyota's goal is 50 percent.