You almost have to feel sorry for Toyota
Sales have suffered as buyers have turned to other brands. But Toyota's production lines are coming back up to speed now, and the company is determined to make up the ground it has lost. Fiercely determined.
But can Toyota pull it off?
A recovery months in the making
Toyota's U.S. sales were down 18% in September on a year-over-year basis, as supply problems continued to constrain sales. The company's U.S. market share has fallen to about 11.5% from over 15% a year ago, and the company's U.S. sales now trail all three of the Detroit automakers. On a year-over-year basis, Toyota's U.S. inventories were down 40% as of the beginning of September.
But executives have been clear: October, they say, will be when that changes. The company expects U.S. sales in the month to show year-over-year growth for the first time in months and is expecting to make up considerable market-share ground in the fourth quarter.
As anyone who has driven a Ford
Toyota clearly knows this and is planning a major effort:
- New product. Toyota's product-introduction cadence has been overtaken lately by Ford and Hyundai, but the company's planning a strong comeback. The small Yaris and popular midsized Camry sedans are redesigned for 2012, and the company just launched the Prius V, a larger version of the company's iconic hybrid. More fresh products will follow.
- Marketing. For the past couple of months, executives have been signaling that Toyota was planning a massive marketing blitz. Expect a lot of television ads and dealer support for those new models, as well as for the brand generally.
- Incentives. Toyota will offer "zero-percent financing" on a bunch of 2011 models -- Camry, Corolla, RAV4, Tundra, Sienna, Avalon and Venza, to be specific -- during October to help jump-start sales and clear inventories of slower-selling vehicles. More deals may follow if sales stay sluggish -- expect Toyota to spend heavily here.
It's a solid plan, and it should generate significant sales gains. But for Toyota shareholders and industry observers, each of those points raises concerns.
Tight margins and lackluster products
Toyota's bread-and-butter compact Corolla was redesigned for 2009, but after so-so reviews, sales of the new car have been muted -- down 23% in September versus last year. Toyota blames the drop on inventory constraints, though Corolla production has been back up to speed since June. It's still the compact sales leader, but General Motors'
The takeaway here is that Toyota -- and its shareholders -- can no longer assume that the company will dominate even the market segments it has owned for years. Competitors like Ford, Hyundai, GM, and even Chrysler have impressed with very strong new products, while Toyota's latest entries seem more evolutionary and conservative (and even, subjectively, rather cheap-feeling in comparison).
You won't like how this story ends
Incremental product improvements may be enough to keep Toyota loyalists (and there are many) coming back for another round. But at what cost? Toyota Senior Managing Officer Takahiko Ijichi said in August that the appreciation of the yen is costing the company nearly $4,000 in profits on every car sold in the United States. The aggressive marketing and incentive efforts that the company is about to launch will squeeze margins still further.
There's a story in the auto business about companies that saw their margins squeezed by lower-cost competitors, forcing them to reduce investments and make do with less competitive products, in turn meaning they had to resort to heavy incentives to keep those products selling to loyalists, while profits and market share continued to decline.
It's the story of Old Detroit, and it was an ugly one.
Is that really where Toyota wants to be going?