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Here's What You Need, Toyota

By John Rosevear – Updated Apr 6, 2017 at 11:12PM

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The latest recall isn't Toyota's only problem.

Shocking news? Not really. Toyota (NYSE: TM) announced yet another recall on Thursday, adding 2.7 million more vehicles in the U.S. to its ongoing attempts to address sticking gas pedals. It comes on the heels of another recall announced a few weeks back that affected 1.7 million vehicles around the world, including 265,000 Lexus sedans that came almost entirely from the U.S market. There were a few different issues involved in that one, but none is trivial: Each of the defects could cause gasoline leaks.

These were the company's first recalls since October, but that's not saying much. According to Reuters, Toyota has now recalled almost16 million vehicles since the company's quality woes began to surface in the fall of 2009, at a hefty cost in both cash and credibility.

But lingering recall woes aren't the only thing causing buyers to hesitate. Toyota is stumbling on a couple of different fronts just as its key global competitors are picking up steam. Can it recover?

The real trouble with Toyota
At least one analyst thinks the gas-leak recall will end up costing the company around $240 million all by itself, but the real costs will be hard to determine. Toyota (barely) led the world's automakers in sales again last year, but its U.S. sales were down 0.3% in a year where nearly all rivals saw big gains., which tracks a number of car-shopper metrics, estimates that 17.9% of buyers considered a Toyota in December, down 2.3 percentage points from December 2009, just before the recall scandal broke into mass public awareness.

Toyota's U.S. sales roughly kept pace with the overall market in January, but the company's 17% year-over-year increase fell short, again, of rivals General Motors (NYSE: GM) and Hyundai, which both posted 22% gains. And a deeper look at that 17% reveals some worrisome details:

  • Last January was a disaster. January 2010 was when news of Toyota's massive recalls first broke, and the company's sales for that month fell to their lowest level since 1999. A year-over-year increase that just kept pace with the overall market, which was up 18%, is not exactly impressive.
  • Fleet sales were up. Lower-margin, resale-value-hurting fleet sales were up to an un-Toyota-like 12.5% of the company's U.S. total in January. The Detroit automakers have traditionally had larger fleet percentages, but Toyota's numbers have historically tended to be well under 10%. A sustained rise would not bode well for Toyota's U.S. profits.

Toyota's not standing still -- the company is rolling out an aggressive marketing and sales campaign. And although company officials say that current Toyota owners are returning to the fold, "conquest sales" remain elusive, as the bad taste of last year's scandals lingers.

And that's not a problem that's likely to go away soon.

Toyota's biggest challenges now
With its vaunted reputation for Consumer Reports-type quality badly dented, Toyota has a group of products that many buyers now see as just another line of cars in a sea of choices. And many of those buyers are looking at products from companies such as Ford (NYSE: F) and Honda (NYSE: HMC) and seeing fresher designs and newer technology.

Toyota has said that it will roll out 11 new or updated models in the U.S. this year. That initiative will help. But from a global perspective, Toyota's biggest challenge is that it just isn't a contender in the highest-growth markets. China? GM and Volkswagen are duking it out for supremacy. India? Suzuki's joint venture with Maruti is the biggest player, with Hyundai and local favorite Tata Motors (NYSE: TTM) well ahead of the other big global names.

Toyota's strength, meanwhile, is in Japan and the U.S. and other developed (read: low-growth) markets, and that may already be costing the company its No. 1 sales position. The company's global production was down almost 4% in January, while emerging-markets leaders Volkswagen, GM, and Hyundai all saw significant gains.

Long story short, marketing and incentives in the U.S. aren't going to help much. The company needs fresh products and an all-out push into the world's highest-growth markets. The first is coming, executives say, and the second certainly hasn't escaped the company's attention.

But can Toyota succeed?

Up until a couple of years ago, I wouldn't have bet against the company. Now? We'll see.

Interested in reading more about Toyota? Add it to My Watchlist to find all of our Foolish Toyota analysis and commentary.

Fool contributor John Rosevear owns shares of Ford and General Motors. The Fool owns shares of Ford, which is a Motley Fool Stock Advisor recommendation. GM is a Motley Fool Inside Value choice. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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