Hotai Motor Achieves Over 50% of 2012 Revenues via Reinvestments

An affiliate posts record export of Altis sedans to the Mid-East in 2012

Justine Su, president of Hotai Motor Co. Ltd., Taiwanese agent of Toyotas, Lexus as well as a major car distributor for more than 10 years, recently forecast the overall new-car market on the island to grow about 1.1% to some 370,000 units in 2013, provided the government effectively promotes economic development and stir consumer confidence.

Hotai registered revenue of NT$89.66 billion (US$2.99 billion) in 2012, up 4.3% from previous year, and pre-tax earnings 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 such earnings are return-on-reinvestment.

In partnership with Toyota of Japan, Su says during a recent interview by Chinese-language economic daily Economic Daily News (EDN) that Hotai has successfully achieved a high market share of 33.8% in 2012, but the modest domestic automobile market forces his company to invest overseas for growth. Hotai has teamed up with Toyota for joint development of the auto-accessory market in China, whose model, if successful, will be duplicated in other markets in the Middle East, Europe and United States.

Replacement Purchases
Thanks to stronger-than-expected demand last December (34,500 units sold), overall new-car sales in Taiwan totaled 365,871 units in 2012, slightly higher than originally forecasted by Hotai (363,000 units). Despite different economic uncertainties ahead, Su says, replacement purchases are expected to push the overall market to some 370,000 units this year, in which Hotai aims to win a share of at least 34%.

The devalued Japanese yen against the U.S. dollar helps Hotai to negotiate more competitive prices with Toyota Japan, Su says, but Toyota headquarters has finally decided only to reduce the original 3% price hike to 1%, because it has been offering the best prices to Hotai for more effective market development in Taiwan. So the president adds that Hotai can only be cautiously optimistic towards sales this year.

Another driver of new-car sales volume in Taiwan is that the Taiwan Transportation Vehicle Manufacturers' Association (TTVMA) is trying to persuade the government to subsidize replacement of older-than-15-year cars, with all local automakers and vendors eager to see the program ratified by the legislature as soon as possible.

Car ownership in Taiwan is about six million now, Su says, and about five million units are in-use. That means, a 1% annual replacement leads to demand for some 50,000 new cars, which can raise the island's annual new-car sales volume to outstrip 400,000. Before 2008, annual car scrap 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 scrap rate worsens environmental pollution sand traffic safety, as well as being a key to suppress new-car sales in Taiwan, Su explains.

More Auto Parts from Taiwan
"We have a good and stable relationship with Toyota Japan, and such partnership has solidified further after the massive earthquake/tsunami in Japan and serious floods in Thailand (which undermined Japanese automakers' parts supply chains), because the Japanese appreciate more the connection with Taiwan, especially with increasing uncertainties in Southeast Asia," says Su.

Though the increasingly close relationship between Taiwan and Japan has not created big, new investments on the island, Su says, but something has changed. Toyota, for example, began to procure more auto parts from Taiwan, for not only Toyota's factories in Japan, but also overseas assembly plants. The higher procurements further cut Toyota's costs, also bringing more opportunities to Taiwan's auto-parts suppliers.

Increasing Exports
The increasingly close partnership between Toyota and Hotai is also increasing the export volume of locally-assembled Toyotas by Kuozui Motors Ltd., 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 exports to the Middle East and the rest for domestic sales, with the annual volume to further increase to about 200,000 units, another record in company history. The Taiwan-produced Toyota Altis sedan has won high popularity in the Middle East, driving export-volume growth from Taiwan, Su says. The increasing export volume helped Kuozui achieve all-time revenue high of more than NT$98 billion (US$3.3 billion) in 2012, despite the small car market in Taiwan.

According to Su, Kuozui's production capacity is fully booked and has no more for another model for export in the short term, with the carmaker to decide on capacity expansion by observing if the market can support long-term growth.

Affiliates
Hotai's other major reinvested subsidiaries also reported encouraging results to further ramp up the parent company's earnings, including Hotai Financing Co. and Hotai Leasing Corp. In 2012, the two companies had pre-tax earnings of more than NT$2 billion (US$66.7 million); while total assets outstripping NT$90 billion (US$3 billion).

Hotai Financing's major business is to provide installment-payment services to buyers of new and used cars, motorcycles, medical devices, machinery etc. The firm jumped to lead installment-payment provision in Taiwan in 2004, offering in 2012 more than NT$50 billion (US$1.7 billion) installment-payment loans to consumers, up 25% from the previous year.

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

Carmax designs, makes and supplies genuine Toyota accessories, reporting in 2012 revenue of NT$3.6 billion (US$120 million), and announced a tie-up with Guangzhou Automobile Industry Group Co., Ltd. (GAIG) to jointly develop the 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 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, as well as planning to export more Taiwan-made auto accessories to Japan to raise revenue.

Su points out that there will be lucrative chances for Carmax, 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
Besides being a Toyota agent in Taiwan, Su says, Hotai has been also aggressively expanding business in China, and is very optimistic about Toyota sales in China, while fully trusting Toyota's development strategies in the big market.

Hotai has in China 15 dealers and is scheduled to add another four, including three for Lexus and one for Toyota this year, says Su.

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 Toyota cars. 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 of more than NT$2 billion (US$66.7 million); while total assets outstripped NT$90 billion (US$3 billion).
Carmax Co., Ltd.	Designing and supplying genuine 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