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The car, which has yet to be publicly named, is a key plank in Toyota's fightback strategy in a market where its sales were battered last year in the fallout from a row between Beijing and Tokyo over disputed islands in the East China Sea.
The new model, with both sedan and hatchback versions, would likely replace the Vios and the Yaris in Toyota's China product line-up. Those two models have failed to spark and are a reminder to management how Toyota misread the Chinese market even before last year's territorial dispute that halved the company's sales in September.
The new car is critical to Toyota's China strategy as it is planned as a high-volume model to regain momentum in the market and restore branding after the Yaris fizzled.
Missing the goal
A decade ago, Akio Toyoda, the founding-family scion who now heads the group, ran Toyota's China operations and set the "aspirational" goal of selling 1 million cars a year in China by 2010. It missed that goal in 2010 and again in 2011. In September last year, days before the diplomatic dispute with China, Toyota said it aimed to sell up to 1.8 million cars annually in China by 2015.
The company's 2012 China sales fell nearly 5% to 840,000 cars, and Masaki Taketani, Detroit-based research director at consulting firm IHS Automotive, doesn't see sales topping 1 million until at least 2015.
Much will depend on what Chinese drivers make of the new car, and where Toyota pitches its price.
"This is a live-or-die car for us," said a senior China-based Toyota executive, who didn't want to be named as the car has yet to be unveiled. A Toyota spokesman in Beijing declined to comment.
Lacking "DAQI"Both the Vios and the Yaris, intended as entry-level cars when they were launched in China in 2002 and 2008 respectively, failed to resonate with a new consumer class of people who now just about earn enough to be able to afford a car.
Dealers said both models lacked what the Chinese call "daqi", or the road presence consumers look for even in small cars. Both were also priced too high - with the Yaris costing from 87,000 yuan and the Vios from 89,500 yuan, while annual incomes rose for many to 50,000-60,000 yuan.
Crucially, General Motors'
"The car is going to be a test case for Toyota and other Japanese companies on their future in China," IHS' Taketani said. "This is a must-win car for Toyota."
He predicted Toyota would do well to sell 80,000 of the new cars by 2015, well short of the 200,000 a year he believes the company is targetting. He expects production of the sedan version in China to begin in September and the hatchback in December.
Toyota is not expected to unveil its pricing strategy for the new car at the Shanghai event, and few in the industry expect it to price below the 62,000 yuan, or $10,000, level.
Based on Etios?
The car is billed as a product Toyota has designed and engineered for China, though people inside the company say it is loosely based on the Etios, a basic model that sells in India for as low as $8,350. As Chinese drivers are comparatively better off and expect more features in their cars than people do in India, Toyota is adding a few upgrades, making the car more expensive.
"Just because they are Toyota cars, Toyota's Japanese management has mistakenly believed that Chinese consumers should pay a Toyota premium, as people do in the US," said a major Toyota dealership operator, who asked not to be named because of the sensitive nature of his comments.
"They are finally starting to realize they are wrong."
