The news from Toyota Motor and Volkswagen couldn't be more different. While Wolfsburg is struggling with a lot of effort to implement a restructuring program that will result in the loss of another 50,000 jobs, its rival from Japan is reporting a completely different plan: “the mass production of happiness”. The Woven City, a small city built by the company at the foot of the Fuji volcano, wants to create, together with its home region of Shizuoka, “a society in which people can truly experience happiness,” it said in a statement.
Existential crisis in Germany, maximizing happiness in Japan – the contrasting messages from the world's number one and two car companies reflect how differently they are currently developing. For a long time, the two rivals were neck and neck with the sales figures of their cars. In the meantime, Toyota, with 11.3 million vehicles per year, has overtaken the VW Group with almost nine million.
VW earned just 5.9 billion euros operationally in the first half of the year and achieved a meager margin of 3.8 percent. In contrast, Toyota President Kenta Kon just increased the profit target for the fiscal year ending in March to 3.4 trillion yen (18.8 billion euros). The Japanese company's operating return on sales was recently twice as high as VW's at 7.9 percent. “We will continue to invest in growth without having to slow down,” said Kon, with a subtle swipe at the weakening competition.
On the other hand, José Muñoz, the managing president of Hyundai Motor from South Korea, sounds downright aggressive. “Hyundai Motor Group is the third largest automobile company and the second most profitable,” Muñoz said at an investor day in late August. “This gives us the opportunity to invest while others are withdrawing.” While Oliver Blume, the CEO of VW, is doing everything he can to reduce the model range and is threatening to close plants in Germany, Muñoz announced the “biggest product offensive in our history” for the Koreans with more than 100 new or revised models and an expansion of production by around 1.3 million vehicles per year.
After selling almost 7.5 million Hyundai, Kia and Genesis vehicles last year, the Koreans could catch up with Volkswagen. “Our fundamentals have never been stronger,” Muñoz said. Hyundai Motor's operating return on sales was recently 5.8 percent, while its subsidiary Kia achieved eight percent.
The Asians have a broader regional presence
The VW Group crisis had been brewing for years. In China, once the group's most important sales market, sales have fallen by almost 40 percent to 2.7 million cars since the peak before the corona pandemic. Volkswagen is far behind in the electric car business. In the United States, despite decades of effort, the company has not progressed beyond a niche role. A mixture of bad decisions and false expectations has brought the once proud company into its predicament.
Compared to VW, Toyota and Hyundai are more broadly positioned, both regionally and in terms of engine types. This means they can better withstand the storm of American import tariffs, new Chinese competition and the change to more climate-friendly drives that have been shaking up the automotive industry for several years.
“Toyota is a master of regional diversification, while VW is not,” says Julie Boote from the British analysis house Pelham Smithers. “VW is far too dependent on Europe and China and has neglected other regions.” Toyota, on the other hand, has a strong position in Southeast Asia with various plants and a large sales network. It also sells significantly more cars than VW in Africa and the Middle East because the Japanese have built up a loyal customer base there with their off-road vehicles and pick-up trucks, which are considered indestructible. If something does happen, customers there can rely on a well-established supply chain for spare parts.
Hyundai has become the second largest car manufacturer in India and is benefiting from the rapidly growing middle class there. From the inexpensive factories on the subcontinent, the Koreans serve large parts of South Asia and even Africa. The rapid upheaval in the Chinese market has hit Toyota and Hyundai less hard than the German car champion.
Volkswagen is lagging behind in America
The two Asian companies owe their higher profitability primarily to their strong position in the United States. In this high-margin market, Toyota sold more than 2.5 million vehicles in 2025 and was number two after market leader GM. Hyundai sold a good 1.8 million cars with its corporate brands Kia and Genesis. The VW Group, on the other hand, has become a niche player in the USA following the historic success of its Beetle and Bulli models. The core brand VW recently delivered almost 330,000 vehicles in America, together with Audi and Porsche it was around 580,000 units. This corresponds to a market share of 3.5 percent and is a long way from the ten percent we were once aiming for.
“The sales figures looked similar ten years ago to what they do today,” says automotive analyst Boote. “VW has never managed to close the gap with Toyota.” She sees the main reason for the deficit as the Wolfsburg-based company's reluctance to build up significant production capacity in the region. Toyota and Hyundai, on the other hand, are investing billions of dollars to expand their existing factories in America with additional production lines and thus be less vulnerable to Donald Trump's import tariffs.
“VW stands for complicated technology and high repair costs in the States and has missed the transition to crossovers, SUVs and pick-ups there,” says Boote. “Of course the diesel scandal wasn’t helpful either.” One of the ironies of history is that Toyota, of all companies, once provided the impetus for Volkswagen's diesel offensive in America - and thus indirectly for the scandal that later shook the Wolfsburg-based company. When the Japanese had a bestseller in the USA with their first hybrid Prius around the turn of the millennium, Volkswagen found itself under pressure to act. The Wolfsburg-based company wanted to counter the half-electric vehicle with its own concept: highly efficient, supposedly clean diesel engines. In order to comply with the stricter American emissions regulations, VW finally resorted to illegal software that manipulated the emissions values.
Toyota's path of many drives
In order to shake off the dirty image of “Dieselgate”, Volkswagen then turned particularly fervently to electromobility. The hasty shift towards pure electric motors - which was also forced by European politics - has played a significant role in the fact that many European and especially German plants have not been operating at full capacity for years. Entire locations have been converted and are now experiencing difficulties because the battery electric cars are not selling as hoped.
Toyota, on the other hand, consistently stuck to its “path of many drives” in order to accommodate the wishes of customers, not politicians. It put aside the development of pure electric vehicles and concentrated on the further development of hybrids. This mix of battery and combustion engine drive has been a bestseller with customers all over the world for years because it makes people less dependent on high gasoline prices and the hassle of charging at electricity stations. Almost every second Toyota sold now has a hybrid engine. Because the Japanese have been leaders here since the 1990s, they have been able to significantly reduce development and production costs. The hybrids are considered the group’s “cash cows”. At Hyundai, this drive accounts for a third of sales in the United States alone.
Toyota and Hyundai are also not left unscathed by the world's crises. Above all, the war in the Middle East, from where manufacturers in the Far East source a particularly large amount of raw materials and materials, has driven up costs. In addition, Trump's tariffs and efforts to circumvent them through more production in the United States are costing billions of euros. For Toyota, the cost ratio has deteriorated from 80.4 to 85.3 percent within three years.
Getting costs back under control is now the most important task for Kenta Kon, who was appointed to head the group in the spring. The former CFO is a close confidant of the company patriarch Akio Toyoda and was his assistant when he led the car manufacturer out of a deep crisis and back to new prosperity in the 2010s. Kon should now take countermeasures early on. “Once you're in the red, you can't take on new challenges at all,” says Kon. He mentioned the further simplification and standardization of the installed parts as well as closer cooperation with suppliers in their development as the first possible measures.
World class in cost reduction
The Japanese have always been world class when it comes to cutting costs. Shortly after the Second World War, the company developed the legendary Toyota Production System (TPS), which placed increasing efficiency at the heart of car production. Just-in-time deliveries and the avoidance of all kinds of waste are the best-known keywords. An integral part of this system is Kaizen, the constant improvement of products and processes, including through the close integration of employees' ideas. Models are built in a few, clearly defined configurations instead of with many individually selectable special features.
Year after year, reducing production costs is on Toyota's agenda. With each annual balance sheet, the company reports cost reductions of 150 billion yen (around 840 million euros) or more. In the years during and after the corona pandemic, in which many raw materials and materials became more expensive, Toyota even countered this with a cost reduction of 380 billion yen (2.1 billion euros) in one year. There are numerous stories of how Toyota not only saves money with more efficiency on the assembly lines, but also on writing materials at the desks.
Former VW CEO Martin Winterkorn had already tried to orient the company towards Toyota's efficiency. But the Wolfsburg thicket of model and equipment variants kept growing. The incumbent CEO Blume now wants to take action: around half of the models will be eliminated in the next few years and the complexity will be much lower. The group also wants to curb labor costs in Germany. In some plants they are more than twice as high as at other European locations.
A special feature of the Toyota system is - as is typical in Japan - the Keiretsu, a wide network of supplier companies such as Denso, Aisin and Toyota Industries. They are independent companies, but interwoven with each other and with Toyota through close partnerships and sometimes cross-shareholdings. This structure ensures that Toyota's administration is considered more flexible and less complex than Volkswagen's.
How do you count the workforce in comparison?
The “bloated workforce” is Wolfsburg’s biggest problem, says Christopher Richter, an experienced automotive analyst at investment group CLSA in Tokyo. The approximately 650,000 VW employees are compared to around 390,000 Toyota employees. The 40 percent smaller workforce produces 25 percent more vehicles, says Richter. Last but not least, he sees the complicated mix of the many interest groups in the VW Group as an obstacle to real reforms. “VW has long been strongly influenced by domestic German interests such as unions and governments,” says Richter. “Their small-scale view does not recognize that VW operates on a global stage.”
Such comparisons with the Japanese go against the grain for the employee representatives around VW works council boss Daniela Cavallo. In the most recent dispute over further austerity measures, IG Metall complained about the “Toyota apples and pears comparison”. The figures from the two companies, as it says in a special sheet of the IG Metall newsletter “Mitdeterminieren”, cannot simply be placed side by side - especially because of the different levels of vertical integration.
In the Japanese system of closely interlinked corporate groups, a number of suppliers are actually dependent on the large manufacturer, it says. However, the suppliers' employees did not appear in Toyota's workforce statistics. Volkswagen, in turn, has its own components division with tens of thousands of employees. They produce gearboxes, engines or raw cast parts and now also batteries for electric cars. IG Metall believes that it is a “milkmaid’s calculation” to equate both systems.
Investors on the capital market have long since made their verdict: VW shares are trading as low as they were during the darkest times of the diesel scandal. In contrast, Toyota Motor's share price has doubled in the past ten years. The Japanese company is valued at the equivalent of 200 billion euros, Hyundai at 60 billion euros, and VW comes at just 40 billion euros. The differences in assessment leave the company managers with varying degrees of scope for action.
