Toyota, VW duke it out for sales crown

The fight for leadership in the global auto industry is about to turn into a gun-blazing battle.

After announcing a new global strategy last month, reports from Japan indicate that Toyota, currently the world's largest automaker, is finalizing plans to add at least two new assembly plants.

At the same time, rival is adding new plants and boosting capacity at others, including its facility in Chattanooga, Tennessee.

Workers inspect a Passat at the Volkswagen Chattanooga plant in Tennessee.
Mark Elias | Bloomberg | Getty Images

"It's going to be a tough battle because you have two competitors with a broad portfolio of products targeting every market in the world," said Joe Phillippi, president of AutoTrends Consulting.

Although Toyota management insists that being No. 1 is not a corporate goal, the company is ramping up its global capacity just as VW is poised to take away its sales crown.

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Toyota has held the distinction of being the industry sales leader since 2008, albeit with a brief interruption in 2011 due to production problems caused by the devastating Japanese earthquake.

Last year, Toyota sold 10.23 million cars, trucks and crossovers. VW's sales rose 4 percent to 10.14 million vehicles worldwide, pushing past General Motors' 9.92 million. VW's management has said it is targeting global leadership by 2018.

"VW is stronger in South America, China and Europe," said Stephanie Brinley, a senior analyst at IHS Automotive. "[But] Toyota is so much bigger in the United States."

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Each automaker also has its own set of weaknesses. Toyota has largely missed out on the booming growth of the Chinese market, in part due to the long-standing enmity between the two countries.

Volkswagen, in turn, can't seem to gain traction in the United States—a market where it once was the dominant import thanks to the original Beetle.

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Despite these problems, VW has been achieving stellar growth—in part due to acquisitions. Its most recent addition was Porsche in 2012.

"In China and the U.S., they are polar opposites," Phillippi said.

Both makers are plotting ways to overcome their challenges.

According to reports, Toyota plans to shore up its presence in North America with a new plant that's expected to produce the next-generation Corolla. The reported $1.3 billion expansion will also add new capacity in China. These plants would end the automaker's three-year freeze on new facilities, which was put in place to keep growth in check.

Toyota did not immediately respond to a request for comment.

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Volkswagen, in turn, recently announced plans to double the size of its assembly plant in Chattanooga. This week the company confirmed it will boost the size of that factory by another 25 percent, as part of the $900 million project.

The Chattanooga plant will produce at least one of two new SUV models that are being developed for the U.S. market, an area in which the automaker has lagged.

Some observers say Volkswagen could close the gap with Toyota this year, especially as the Japanese maker's president, Akio Toyoda, has warned of a short-term downturn this year, due in part to declines in the Japanese market.

But VW could be hurt by the recent slowdown in the Chinese market. Industry groups there expect sales to grow less than 8 percent in 2015 after a decade of double-digit gains.

Meanwhile, others—including GM—remain in the race.

"If either VW or Toyota start focusing on just each other, they risk losing focus on consumers, losing focus on their other competitors, losing focus on what's happening in the rest of the world," Brinley said.