Toyota Stays Practical

It's hard to argue with Toyota Motor's (NYSE: TM) success. In its latest fiscal year, the Japanese automaker posted $10.2 billion in earnings, a whopping 54.8% increase from last year's results. More recently, the firm turned in its best-ever June sales in the U.S. All of this in a difficult environment for auto companies, with both Ford (NYSE: F) and General Motors (NYSE: GM) reporting declines in June sales.

Toyota owes a lot of its success to its incredible lineup of cars and trucks. In June, the company saw sales of its Camry jump 7% to 37,603, keeping its spot as the No. 1 selling car in America; its Sienna truck rose 25.3% to 13,681, and its Lexus luxury RX 330 SUV increased 14.1% to 8,760. Meanwhile, the company's innovative hybrid Prius continues to see spectacular demand, so much so that Toyota may double production.

Nevertheless, I cannot help but second-guess one of the company's recent decisions. Last month, Toyota announced that it will discontinue production of its MR2 Spyder. The Spyder, an entry-level, convertible roadster, does not address a large market, nor has it ever been a big seller. Even the leader in this segment, Mazda's Miata, reached sales of just 800 units in June.

Nevertheless, these cars are less about earnings and more about image. The Spyder never seemed to be a major priority for Toyota, so its lackluster results are not surprising. The Miata, however, has consistently held a prominent place in Mazda's marketing. For all their impracticality, roadster convertibles such as the Miata bring spice to a brand and attract the interest of young buyers. Notably, Mazda seems to be having a lot of success capturing this segment, which includes first-time buyers who are looking for something hip and inexpensive. The logic of going after this group seems relatively straightforward: If these consumers have a positive experience with one brand, they are more likely to stay loyal when they trade up to a pricier model.

Toyota's decision comes even as General Motors prepares to introduce its own low-priced convertible roadster, the Solstice, in fall 2005. Many General Motors products have been dogged by the perception that they are for people who are, well, old. The eye-catching Solstice could do a lot to change this perception.

Toyota is sitting on top of the world right now with cars known for their practicality and quality. Its Scion division, meanwhile, is appealing to the younger crowd on value. But the automaker would do well to remember that consumers also like excitement.

Fool contributor Brian Gorman is a freelance writer living in Chicago. He does not own shares of any companies mentioned here.