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Innovation
Toyota Europe’s gear shift from automobile to mobility company
In response to changing car ownership trends in the European marketplace, Toyota decided to launch KINTO, its new mobility brand, in 2021. Its approach holds lessons for any organization looking to shift its business model to accommodate new market realities.
Established in 1937, Toyota is one of the largest automobile manufacturers in the world. In 2020, it was the third-bestselling passenger car brand in Europe. Yet, in 2018, Toyota president Akio Toyoda set out his vision for transforming Toyota from a heavyweight manufacturer into a provider of mobility services.
Sensing a shift in demand from ownership to on-demand usership, Toyota began preparing its European organization for the introduction and integration of new mobility services into its existing business of making and selling cars. By the end of 2021, Toyota had established KINTO as a mid-sized mobility player active in nine European countries with 110,000 cars under management.
The transformation rationale
In the space of eight years (2010-2018) the European market had shifted significantly from private ownership towards corporate fleets, with two out of three new cars being sold to companies. Also, corporates increasingly opted for full service leasing contracts to avoid bulking up their fixed-asset ownership. A further trend that emerged was the outsourcing of fleet management to reduce costs.
There was also a parallel trend developing towards usership over ownership in the private sector as road tolls and high parking costs had made car ownership less attractive. In the period 2016-2018, European car sharing doubled to 11.5m users.
“People want zero down payments, predictable monthly costs, inclusive insurance, maintenance, tires, and auxiliary services so they know, ‘My car costs me €350-€450 per month’,” explained Tom Fux, former CEO of KINTO Europe.
Moreover, mobility as a service would allow Toyota to build sustainability at the core of its value proposition by maximizing the lifetime value of the vehicle over multiple usage cyles.
The benefits of mixing organic and inorganic growth
Given Toyota’s manufacturing and distribution DNA, the company initially lacked the capabilities to manage full service leasing or long-term renting of larger fleets, so it decided on a mixed strategy of organic and inorganic growth. In Spain, France and Italy, the company chose to offer 3‒4-year operating leases including maintenance, service and repairs, and limited telematics. The offer was restricted to new Toyota and Lexus cars through the dealer channel to private consumers and small and medium-sized enterprises (SMEs).
To be truly multi-brand, offering a car to suit every customer (including hybrid and electric models), Toyota had to create a large network of service points, offering key auto brands in every major town in larger markets. It could not do this alone. To accelerate growth, Inchcape Solutions, one of the UK’s largest independent fleet management and full-service leasing specialists, was acquired for €100m (US$104.2m). A joint venture in Portugal with Salvador Caetano Auto na Finlog followed soon after, providing a rental solution with a fixed fee. Both deals accelerated the team’s learning and growth.
Turning the business model on its head
The insight that the next generation was pivoting from ownership to usership prompted a total rethink of Toyota’s operating model from a sales-based framework with no ownership or utilization risks, focused on managing credit risk and minimizing operational expenses.
The new fleet management model was geared towards optimizing car utilization levels from the first-cycle lease of a premium car to the second cycle as a refurbished rental vehicle, followed by a third cycle for subscription services, thereby maximizing the lifetime value of the fleet. Toyota was not the first mover in the mobility field but it is committed to wholesale change – experimenting with new concepts, failing fast, and setting up a new business model with agility.
Act like a start-up
Heading up the mobility business, Fux saw the need for an operation that could act like a startup while maximizing the benefits of working under the umbrella of an established manufacturer with an extensive distribution network. The new mobility company, KINTO Europe, was a joint venture between Toyota Motor Europe and Toyota Financial Services. In this way, the motor company’s deep knowledge could be combined with the risk management expertise of the finance business.
Fux’s initial core team comprised six hand-picked Toyota executives and sought to capitalize on existing strengths and internal partnerships. The “startup” would not require its own HR or legal teams, for example. Moreover, with no middle management, the decision-making process was streamlined, with approval of the acquisition of Inchcape achieved in three to four steps.
We are building our own roadmap; there is no predefined approach. KINTO is not bound by any service or location. We are truly diversified. The goal is not to be the biggest, but to be most ready in every town in Europe.- Tom Fux, Former CEO of KINTO Europe
To increase autonomy, Fux sought to distance the team physically from head office, reasoning that it would need the freedom to operate without constant supervision while still being able to take advantage of its position within the Toyota framework. As he explained to the top management: “We are like the sun and Earth. If I come too close to you, the sun, you will burn me. But if I go too far, I will freeze. I need your support and power.”
KINTO Europe began operating out of an existing Toyota location 200 km away in Cologne, on the understanding that Fux would travel to head office as required. Creating the right culture was also key. When it came to hiring personnel beyond the core team, Fux scoured a range of companies, reasoning that, with a mix of approaches and viewpoints, KINTO could create its own culture not overly influenced by any one group.
The KINTO brand cometh
KINTO was only the third brand to be launched in the company’s history (after Toyota and Lexus), signaling strongly to the market the carmaker’s intention to rebrand itself as a one-stop mobility provider for all – individuals, corporate clients and cities. Conventional business wisdom might have suggested that the greatest value lay in building on the strength and legacy of the existing brands. However, the company took a long-term view to enable mobility from point A to B in all forms (not just cars). An overarching future-proof brand for mobility services was required; KINTO was launched first in Japan in 2019 and then in Europe in 2020.
With the intention of delivering mobility for all, KINTO offered a range of services including full leasing, subscription services, car sharing, corporate carpooling, and KINTO Go, a multi-modal aggregator coordinating services such as route planning, public-transport ticketing, parking, tax-payments, and market-related events. KINTO tailored its service offering to each country depending on customer maturity and dealer readiness in each market.
Getting the dealers on board
The traditional role of authorized dealers was to sell the customer their vehicle of choice and provide stipulated servicing of the vehicle during the guarantee period. Dealers did not typically offer rental services, nor have the capability to manage a fleet of shared vehicles. The success of KINTO, and a subsequent ability to scale the company, would depend on creating a new value chain in which dealers repositioned themselves as mobility services providers. This would involve ramping up digital engagement with customers, expanding service infrastructure, and building new capabilities at the back end in order to maintain a large vehicle fleet. As Fux commented, “It is important to work with hand-raisers.”
Spain, France, and Italy were chosen as the markets that would be most receptive to change, given existing pressures and customer maturity. Toyota began the task of onboarding dealers, dispatching senior management to explain the company’s mobility vision, KINTO’s significance as Toyota’s third global brand, and the essential involvement of dealers as critical partners. Dealers also needed to see that their involvement would bring commensurate financial benefits and make them ready for growing usership trends.
Managing mobility growth
By mid-2021, KINTO had become a mid-sized mobility player in Europe. A number of KINTO’s staff had come from a non-Toyota backgrounds and had brought that energy with them. They wanted to push the company to scale up quickly and secure a dominant market position. Fux disagreed, believing that building capability was the priority over scale.
The expense of rolling out thousands of cars into one city to become the leading player would be an unsustainable model. Instead, Fux took a long-term view, building up digital capability and innovative business models across Europe. With capability in place, KINTO had the agility to respond to whatever the market threw at it. “Our vision is to be the mobility provider of choice for all types of customers,” Fux explained at the time.
Key lessons
- Be prepared to turn things on their head. Having established the direction of travel over car usership, Toyota acted swiftly and with conviction.
- Be outward looking and responsive to trends. Despite a rich history as an auto manufacturer and a global brand with 85 years of accumulated goodwill, Toyota was prepared to take on board external perspectives and respond to shifting market views.
- Think like a startup while capitalizing on existing capabilities. KINTO was able to draw on the strengths of the Toyota infrastructure, while its agile structure and separate location allowed for swift decision making.
- Don’t be afraid to create a new brand. The launch of KINTO was a clear signal to the market of Toyota’s intention to become a mobility service provider. Its disassociation from existing brands allowed it to create its own identity and position itself to expand into the burgeoning mobility market.
- Bring partners along on the journey. The future of KINTO was dependent on the dealer network. Toyota was required to invest time and effort in persuading dealers that their expanded role in the new value chain would bring commensurate profitability.
- Build capability before scaling up. The mobility sector is not a zero-sum game. Spending time building capability across regions is more strategically beneficial in the long run than scrambling to scale up before the business is ready.
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