DISC 212- Introduction to BPM

Sales Forecasting of Honda Atlas Cars and Toyota Indus Motors

&
Comparative Analysis of Sales

Group 3
Imaan Shahid
Muhammad Zeeshan
Arooj Bilal

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 CONTENTS

Purpose of Project 1

Description of data 1

Description of time-series plot 2

Reasons for seasonality in time-series 4

Forecasting technique used 4

Comparative Analysis of Sales of Honda and Toyota 8

Reasons for Honda lagging behind 10

Recommendations to Honda Atlas Cars 11

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Purpose of Project

Pakistan’s auto market is mainly dominated by the big three, namely, Honda, Toyota and Pak
Suzuki. Although, there have been some positive movements with the possibility of some new
manufacturers like Kia, Hyundai and Renault entering the Pakistani auto market, it still looks
unlikely that the big three manufacturers will be seriously challenged and hence it looks unlikely
that their sales patterns will change. Out of these three, Honda and Toyota are in direct competition
with Suzuki targeting a different market. The cars that Honda and Toyota produce have similar
features, similar price range and target the same market hence these cars are in direct competition.
These cars in direct competition are Honda’s City and the higher end Civic and Toyota’s Corolla
Gli & Xli and the higher end Corolla Altis. Since the two manufacturers have their horns locked,
it’ll be interesting to find out using our time-series and plots how their sales compare to each other,
what patterns the sales exhibit and the possible reasons behind these patterns. We will be
suggesting a few recommendations that the manufacturer can adopt to fill the gap in sales, if any
and match the other manufacturer.

We’ll also be using their respective time-series to plot time-series plots and based on the patterns
exhibited by these plots, use the appropriate forecasting technique to forecast their future demand.
The future sales and current sales found out using forecasting will also be compared through plots.

Description of Data

Our data consists of two different time-series which have been used in the model. One of the time-
series consists of the total sales of Honda Atlas Cars ranging from 1.3L to 2.0L. This includes the
quarterly sales of all variants of Honda City, Honda Civic and Honda Br-v. The time-series
consists of the total sales of each quarter from 2007-2017. The other time-series consists of the
total sales of Honda’s direct competitor, Toyota. The total sales are composed of sales of all

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variants of Toyota Corolla ranging from 1.3L to 1.8L. Just like
the first time-series, this time-series also consists of quarterly
total sales from 2007 to 2017. Each time series consists of 44
data points and the model hence makes use of a total of 88 data
points.

Description of Time-series Plots

The time-series plot for Honda’s Quarterly sales from 2007 to

2017 show both seasonality and trend. The increasing trend in
sales is quite visible as the total sales increased from 5135
units in quarter 1 2007 to 12174 units in quarter 4 of 2017,
that’s an increase of approximately 2.37 times. The time-series
plot for Honda’s quarterly total sales also shows seasonality.
Repeating patterns can be observed over successive periods of
time. Sales are usually the highest in quarters 1 and 2,
moderate in 3 and the lowest in quarter 4 of each year. 2012 is
an exception, where the sales are lowest in quarter 1 of 2012
instead of quarter 4 of 2011. Other than 2012, sales are always
lowest in quarter 4 of the year and increase in quarter 1 of the
following year. Fig1: Time-series for Honda’s quarterly sales

Similarly, the time-series plot for Toyota’s quarterly sales Fig2: Time-series for Toyota’s quarterly sales

also exhibit both seasonality and trend. Other than the point
of discontinuation of a model, sales show an increasing trend. This is also apparent from the fact
that sales in quarter 1 2007 were 9339 units and over a period of ten years increased to 12601 units
in quarter 4 of 2017. Seasonality is also visible as sales are highest in quarter 2 of successive years
with few exceptions. The pattern of lowest sales in quarter 4 of each year also repeats in successive
years with only a few exceptions.

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 Sales Sales

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Fig 4: Time series plot for Toyota IMC’s quarterly sales

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Honda Quarterly Sales

Toyota Quarterly Sales

Fig 3: Time series plot for Honda Atlas Cars’ quarterly sales

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Reasons for Seasonality in time-series
Both time-series exhibit seasonality such that the sales are lowest in quarter 4 of successive years
and this pattern repeats over the time-series. The sales show an increase after the quarter 4 and are
highest in quarter 1 and 2 usually, with decreasing again quarter 2 onwards. This seasonality can
be explained in terms of the buying behavior of consumers. It’s a well-known fact that consumers
in Pakistan delay buying cars in Pakistan in the third and fourth quarters of a year and instead buy
them in quarters 1 and 2 in the following year. This is because if consumers delay it to the start of
the following year, get a car manufactured in that year. These cars that have a more recent
manufacture year as compared to those that consumers would get in quarters 3 and 4 of the
previous year have a higher resale value. It’s this long-term view of a higher resale value that
results in decreasing sales in quarter 3 and lowest in quarter 4 followed by a sharp increase in
quarters 1 and 2 of the following year.

Sales also show a decrease following the second quarter because of a number of religious events
in the third quarter such as Muharram and Eid-ul-Azha as a result of which the industry shuts down
for a number of days and also customer focus also shifts. Sales are highest in quarter 1 also because
the annual budget is announced at the end of first quarter and fears regarding an increase in price
of cars causes an increase in sales before its announcement and implementation. Sales are lower
in quarter 2 compared to quarter 1 because of Ramazan and Eid-ul-Fitr in quarter 2 which reduces
production and hence sales are lower compared to quarter 1.

Forecasting technique used

Since the time-series for both Honda Atlas Cars and Toyota Indus Motors Company display both
an increasing trend and seasonality, the forecasting technique used with incorporate both the
dummy-variable approach for seasonality with the time-series regression approach for the
increasing trend. The estimated multiple regression was carried on separately for both Honda’s
quarterly sales and Toyota’s quarterly sales. Hence, the general form of the estimated multiple
regression equation for modelling both the quarterly seasonal effects and the linear trend in the
total quarterly sales time-series for Honda and Toyota is as follows:

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 𝑌𝑡 = 𝛽0 + 𝛽1 𝑄𝑡𝑟1 + 𝛽2 𝑄𝑡𝑟2 + 𝛽3 𝑄𝑡𝑟3 + 𝛽4 𝑡

Where:

𝑌𝑡 = 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑠𝑎𝑙𝑒𝑠 𝑖𝑛 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑡

Qtr1= 1 if time period corresponds to first quarter of the year; otherwise 0

Qtr2= 1 if time period corresponds to second quarter of the year; otherwise 0

Qtr3= 1 if time period corresponds to third quarter of the year; otherwise 0

t = time period t

Fig5: Honda’s quarterly sales time series with Fig6: Toyota’s quarterly sales time series with
dummy variables and time period dummy variables and time period

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 The tables in Fig5 and Fig6 show the quarterly sales time series that include the coded values for
the dummy variables and the time period t. Using this data in Fig5 and Fig6 and R Studio’s multiple
regression procedure, the coefficients for the intercept, each of the quarters and time period t were
found out.

The estimated multiple regression equation for Honda’s quarterly sales forecast is:
𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑆𝑎𝑙𝑒𝑠 = 499.07 + 1776.06𝑄𝑡𝑟1 + 1475.46𝑄𝑡𝑟2 + 1235.32𝑄𝑡𝑟3 + 165.78𝑡
The estimated multiple regression equation for Toyota’s quarterly sales forecast is:
𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑆𝑎𝑙𝑒𝑠 = 6072.4 + 2682.1𝑄𝑡𝑟1 + 2085.4𝑄𝑡𝑟2 + 102.5𝑄𝑡𝑟3 + 139.7𝑡

Fig6: R Studio multiple regression output Fig7: R Studio multiple regression output
for Honda’s time-series for Toyota’s time-series

The forecasted sales for each of the quarters were found out by putting that particular quarter as 1
along with the respective time period t

For instance, the forecasted sales for Honda Quarter 1 2018 were found out by putting Qtr1 = 1
and the time period t = 45

𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑆𝑎𝑙𝑒𝑠 = 499.07 + 1776.06(1) + 1475.46(0) + 1235.32(0) + 165.78(45)

= 9735 𝑢𝑛𝑖𝑡𝑠
Similarly, the forecast sales for Toyota Quarter 1 2018 were also found out by putting Qtr1 = 1
and the time period t = 45
𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑆𝑎𝑙𝑒𝑠 = 6072.4 + 2682.1(1) + 2085.4(0) + 102.5(0) + 139.7(45)
= 15401 𝑢𝑛𝑖𝑡𝑠

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 The same procedure was carried for Quarters 2,3 and 4 by changing the time period t and putting
that particular Qtr as 1.

The forecasted sales were calculated from 2018 to 2022 for each quarter for both Honda and
Toyota from t =45 to 64.
The forecasted sales were as follows:

Fig7: Quarterly Sales forecasts from 2018 to Fig8: Quarterly Sales forecasts from 2018 to
2022 for Honda Atlas Cars 2022 for Toyota Indus Motors Company

Sales and Forecasts

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Fig9: Time-series plot comparison of Sales and Forecasted sales for Honda Atlas Cars

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Fig10: Time-series plot comparison of Sales and Forecasted sales for Toyota Indus Motors
Company.

Comparative Analysis of Sales of Honda and Toyota

The sales comparison of Honda Atlas Cars and Toyota Indus Motors Company shows that the
sales of Toyota have been much higher than Honda over the course of 2007-2017. The sales in
2007 of Toyota were 35088 units whereas those of Honda were 16932 units. The sales of Toyota
in 2007 alone were almost 2.07 times the sales of Honda. An even bigger gap can be observed in
2010 where the sales of Toyota were 44106 units and the sales of Honda were 15324, lower than
what it had recorded in 2007. In 2008 quarter 3 and 4 however sales dipped below those of Honda
because Toyota closed bookings in order to introduce the new model and sales rocketed again as
soon as it was introduced in August 2008. The sales of Toyota in 2010 were approximately 2.88
times the sales of Honda. However, the competition between the two companies has been a lot
stronger between 2012 and 2014 primarily because Honda replaced the 8th generation Civic with
the 9th generation Civic after 6 years. Toyota however, introduced the all new Corolla in August
2014 which was cheaper than the 9th gen Civic and received a great response due to its radical
design compared to previous generations, Honda once again started closing in the gap to Toyota
from the end of 2016 and matched Toyota by mid-2017. This was because in July 2016, Civic

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 replaced the 9th generation Civic with the 10th generation Civic in two variants (1.5 Turbo and
1.8L) which from a consumer point of view is a class apart compared to the Corolla Altis. Honda
also launched its 7-seater, the Honda BR-V in 2017 at a very attractive price and it received a great
response from consumers. Apart from this, Honda has been introducing regular facelifts of its City
which have resulted in an increase in sales despite the model being first introduced way back in
2009. Honda is also catching up because following the launch of the new Corolla in August 2014,
Toyota discontinued the diesel variant of Corolla, the 2.0D Saloon.

Sales Comparison of Honda & Toyota

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Toyota Sales Honda Sales

Fig11: Sales comparison of Honda Atlas Cars and Toyota Indus Motors Company

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Reasons for Honda lagging behind

There a number of reasons for Toyota recording almost double the sales of Honda in most of the
years except 2012-2014 and 2016-2017. Firstly, the network of Toyota Indus Motors company is
much more expanded as compared to Honda Atlas Cars. Toyota Indus currently has 45 3S
dealerships operating across the country compared to Honda Atlas which has a network of 25 3S
(Sales, Spares and Service) dealerships, 16 2S (Spares and Service) and 6 1S (Spare Parts)
dealerships located in major cities of the country. Comparing 3S dealerships alone, Toyota Indus
has as many as 20 more dealerships compared to Honda Atlas. For instance, in KPK Honda just
has 1 3S dealership in Peshawar whereas Toyota Indus has 3 3S dealerships, this greater reach
enables Toyota Indus to be favorites in KPK. Similarly, in Baluchistan Honda has no 3S
dealerships at all whereas Toyota has a dealership located in Quetta which enables it to be preferred
brand in the province. This greater reach means that Toyota Indus is much more easily available
and approachable for customers compared to Honda, which does not have dealerships in certain
parts of the country hence, this plays conveniently to Toyota’s advantage.

Secondly, Honda Atlas discourages the sale of its cars for commercial usage such as cabs, rent etc.
due to its global company policy. Toyota Indus Motors on the other hand takes advantage of this
and does the opposite; it encourages the sale of its cars for commercial usage. This is exactly why
Toyota Corolla (Xli and Gli) is widely used by various cab companies such as Metro Cab, Daewoo
Cab etc. and is also used as a company car in many companies around the country. Toyota Corolla
is widely available on rent as well for the same reason. As a result, Honda’s sales suffer compared
to those of Toyota.

Thirdly, Honda also doesn’t encourage the sale of its cars for use in the public sector (police,
motorway and ring road police, government departments etc.) whereas Toyota capitalizes on this
yet again and does the opposite. A major difference between the two companies causing this is the
policy that Honda is strictly against the sale of its cars on credit where as Toyota finds this perfectly
acceptable. Since, most of the sales made to the public sector on credit, Toyota is yet again the
preferred brand.

Fourthly, perceived image of the brands in the minds of the customers is a huge reason behind the
difference in sales. Toyota Corolla dominates much of the rural Pakistan and matches Honda in

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the urban areas as well. Customers perceive Toyota Corolla variants to be much more durable and
rugged in all aspects specially the suspension compared to Honda City and Civic. Also, the better
ground clearance of Toyota Corolla variants compared to Honda City and the perception that
Toyota spare parts are cheaper compared to Honda’s and are more easily available are major
reasons why Toyota dominates the rural Pakistan where you rarely find Honda cars. According to
a survey by Honda officials, it was found out that consumers preferred Toyota Corolla Gli and Xli
over Honda City despite of it being cheaper and more well equipped primarily because the former
had better ground clearance and because Corolla appears to be more spacious and big and
resembles the top of the line Altis variant. These reasons also explain why Toyota Corolla is widely
used by nearly all rent-a-car services. In the posh urban areas where people place more emphasis
on aesthetics, comfort and performance, Honda is just as strong as Toyota, if not more.

Recommendations to Honda Atlas Cars

There a number of steps that Honda Atlas Cars can take in order to ramp up the pressure on Toyota
Indus Motors Company.

Firstly, there is a dire need of expanding the network of dealerships in the country. A difference
of 20 3S dealerships is huge and if Honda plans on matching Toyota then, it has to set up
dealerships in parts of the country where they are missing in order to increase their reach and
capture Toyota’s sales. It should establish 3S dealerships in rural areas of Punjab as well as in KPK
where it has just one dealership and Balochistan where it has no dealership at all, as a result of
which Toyota dominates these regions single handedly.

Secondly, there is a need to change customer perceptions through extensive marketing campaigns.
Honda should conduct marketing campaigns in the rural areas of Pakistan to change customer
perceptions about the durability of their vehicles. They need to inform customers of all the plus
points of their vehicles over the much-preferred Toyota Corolla Gli & Xli through advertising and
greater presence in these regions. There is a need to convince customers that Honda City and Civic
can withstand the same battering that Toyota Corolla does and that too at a cheaper price and that
Honda’s parts are not expensive compared to Toyota’s. In order to do this however, Honda first
needs to increase its reach through an expanded network. Honda also needs to promote its 7-seater

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vehicle, the BR-V since it has an exceptional ground clearance, is spacious, has a bigger engine
compared to Toyota Xli and Gli and comes at a price tag that is similar to Toyota Gli. It should
hence carry out more marketing campaigns like “Pakistan ke rung, BR-V ke sung” which is being
carried on right now to promote BR-V throughout the country.

Thirdly, Honda needs to understand that despite Honda City fetching sales, its time to introduce a
new model since the present model was introduced 9 years ago, back in 2009. It has over this
period introduced 2 facelifts (aesthetic changes to bumpers and grill and the interior tone) and
although it has resulted in an increase in sales, Honda needs to understand that in order to maximize
their potential they should replace it with the new model because customers are now turning to
Corolla Gli & Xli. With new entrants expected like Kia and Hyundai in the Pakistani market,
Honda should take steps timely to counter this threat and increase its resistance to Toyota, which
also includes introducing the much-needed new model of City.

Fourthly, Honda should promote the sale of its cars to the public sector such as the use of their
cars by Ring Road Police, Motorway Police and 15 Police in order to cut the advantage that Toyota
holds as a result of targeting this sector. Honda claims that it is now promoting its cars to Pakistan
Army and as well as 15 Police, which is an encouraging step. While Honda cannot target the
commercial market, it needs to target the Public Sector and accelerate this process to match Toyota
Indus Motors Company.

If Honda acts on these recommendations, it is possible that it can quickly close in the gap to Toyota
Indus Motors Company and offer a much stronger competition and hence take up a larger share of
the market.

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