DECEMBER 2020

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Data, trends
and forecasts

TAMPATRA/ADOBE STOCK
350,000
Ian Marcousé looks back at one of the
Cars sold

300,000
trickiest years in history for forecasting 250,000
sales and matching supply to demand, 200,000

with practice exam questions and 150,000

sample answers 100,000

50,000

C
SOURCE: CARSALESBASE
OVID-19 hit China hard in February 2020 and 0
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then spread around the world. As governments

2019 2020
locked down, demand for items such as cars
collapsed. In the UK in April 2020, car sales fell by VW Toyota
99%. Six months later sales were still depressed.
Figure 1 V-shaped recovery in China for
However, in China the sales path formed a classic Volkswagen and Toyota
V-shape. Volkswagen (VW) and Toyota are the two
biggest car brands in China, and Toyota’s sales show Figure 2 is the exact same graph, but with added
the V-shape especially well in Figure 1. But Figure 1 processing. A line of best fit has been added to the
hides as much as it reveals — the graph shows ‘raw data to show the sales trends more clearly. Volkswagen
data’: monthly sales figures with no adjustments. It could feel pretty pleased with Figure 1, but less so with
shows the V, but not much else. Figure 2.
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 DECEMBER 2020

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350,000
Practice exam questions
Cars sold

300,000
40 marks, 45 minutes
250,000
1 Another way to provide data on trends is to use
200,000
moving averages. Explain why a business might
150,000
choose to use four-quarter compared with three-
100,000
quarter moving averages. (4 marks)
50,000
SOURCE: CARSALESBASE
2 You can see in Figure 1 that, in January 2020,
0 Toyota had no idea what was coming in February.
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a Draw a supply-and-demand diagram to show
2019 2020
the effect lockdown in China would have had
VW Toyota Linear (VW) Linear (Toyota) on car production and sales. (4 marks)
b Assess two problems Toyota may have faced
Figure 2 V-shaped recoveries with line of best fit
in having to cut back production so sharply in
February 2020. (8 marks)
350,000
3 Assess how Volkswagen might respond to the
Cars sold

300,000 extrapolated data shown in Figure 3. (12 marks)

250,000 4 Given the limitations of quantitative sales
200,000 forecasting techniques, assess whether Toyota
150,000 should assume that it can sit back and watch its
100,000 current strategy bring success. (12 marks)
50,000

0 Answers
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1 Three-quarter moving averages are helpful for

2019 2020 2021
smoothing out erratic factors such as a competitor’s
VW Toyota Linear (VW) Linear (Toyota) pricing or promotions, but only four-quarter moving
averages can allow for seasonal factors, especially
Figure 3 Future trends
fixed ones such as Christmas. By definition, a four-
quarter moving average includes every quarter each
Valuable though Figure 2 is at identifying trends, it time, and only once each time. So every result contains
leaves unanswered an important question: what if we one Christmas. That eliminates Christmas (and any
extrapolated the trend line forwards to see what the other seasonal factor) from the data, allowing longer-
future might hold for each company if each sticks to its term trends to be seen more clearly.
current strategy? This is what is shown on Figure 3, with
2 a
Price

S1
the exact same data extrapolated forward to December S
2021.
The lines don’t meet , but you can see that in January
2019 VW outsold Toyota in China by around 100,000
P1
cars per month. By the end of 2021 that figure might be P
down to 50,000. As VW and Toyota compete each year D
for the unofficial crown of ‘biggest car producer in the
D1
world’, this is important information. In 2019 VW wore
the crown. Next year it’s set to be Toyota. Q1 Q Quantity
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b January 2020 had been a terrific month for Toyota
in China, so the dramatic decline in February
must have been a huge shock. With a well-oiled
machine and just-in-time (JIT) deliveries, a sudden
need to cut back must be difficult, as supplies will
keep flowing in for a while and there may be no
storage areas to cope with large amounts of semi-
completed parts and components. The build-up
of stock would drain the company of its cash
flow. However, Toyota has long been famous for
keeping large sums of cash on its balance sheet.
The dramatic fall in output must have been
difficult in terms of human resource management.
Staff would be worried about being paid to stay
at home (if that is how Toyota did it), and new,
trainee staff would feel anxious about losing the
training time they thought they had. This might
even lead the best-qualified trainees to quit
Toyota and find a different industry and employer
where things seem more stable, such as the
pharmaceuticals business. However, Toyota is one
of Japan’s highest-regarded companies, so that
probably won’t happen.
3 VW has to take its time to re-evaluate its strategy in
China. If it is set on a course of action that means no
major change between now and the end of 2021, it
has to rethink. If the overall goal is to be the global
number one, it’ll struggle to achieve that if it can’t
hold on to its number one position in China, the
world’s biggest car market. It looks like 2022 might
see Toyota on top, if the trends are extrapolated
further forward. But there’s a risk that VW might
respond in too short-termist a way. If it has the wrong
car models for China (diesel when the cars need to be
electric, for instance) there’s no point in cutting prices
to boost demand for the wrong car. Far better to take
time to invest in more and better market research and
R&D, to be launching the right cars even if takes until
2022.
On the other hand, VW might already have a ‘game-
changing’ strategy in play, and know that it has to
be patient. Perhaps it has a new model range to
be launched early in 2021 that should make the
DECEMBER 2020
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extrapolated lines obsolete. The Tesla is a coveted car
in China: perhaps VW has a Tesla rival to be launched
soon. If so, it may be right to leave things be, and
simply wait. It can be a great mistake to change
course mid-stream — strategies need time.
4 Extrapolation based on past sales trends is commonly
used, but has obvious limitations. It is a bit like
estimating Arsenal Football Club’s points total for
December 2021 on the basis of its results in 2019 and
2020. Good luck with that. The management team
at Toyota will most definitely not fall for that error.
They’ll enjoy seeing their progress against VW, but
have no doubt that they will only achieve that sales
figure in December 2021 by continuing to do clever
things. Their main new product development plans
will be near-complete for 2020 and 2021, but they’ll
know more can be done. Toyota’s success elsewhere
has been built on reliable cars and excellent after-sales
service — boy-racers avoid them but parents love
them. Building stronger after-sales service measures
in China could strengthen the brand proposition
further.
But it could be argued that the Arsenal analogy
is meaningless. Running a $275 billion-a-year car
business doesn’t depend on 90 minutes on a Saturday
— it’s about finding the right medium-to-long-term
strategy for each market, and sticking with it. Tesla
has achieved that with its electric performance cars,
Toyota by sticking with its world-leading hybrid cars
for 20 years. It will launch new car models between
now and the end of 2021 — most being planned
replacements for older models and some being an
attempt at finding new niches in China’s colossal car
market — but it’s not ridiculous to think of that as
sitting back and watching its hard work pay off.
Taken from ‘Topical Cases’ at www.a-zbusinesstraining.
com, Ian Marcousé’s site for CPD, topical cases and
business worksheets.
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