Living in the "Motor City," Detroit, over the past year has given me a new appreciation of the auto industry. I have always thought of myself as a car enthusiast, but I'm here to tell you that these people are on completely different level.
When I drive around, the presence of General Motors (NYSE:GM), Ford (NYSE:F), and even Daimler-Chrysler (NYSE:DCX) is as expected as seeing singer Jessica Simpson on a music awards show. General Motors has been the industry's big producer for quite some time, but upstart Japanese automaker Toyota (NYSE:TM) appears to be making its move.
Reports indicate that Toyota will accelerate its 2006 global production estimate to 8.4 million cars, which could vault it past market leader GM (if GM's output remains steady over the next few years). Being the top producer would be good for Toyota's chi, or internal energy, but the main thrust of this Asian powerhouse must primarily be efficiency and sales.
Toyota posted record first-half sales and profits today because it is creating cars that interest consumers, not because it wants to produce more cars then the top company. The company's domestic market share has risen to more than 12% (GM's market share is about 30%) on the strength of its Toyota Sienna, Lexus RX 330, Toyota Prius, and new Scion brands.
The key to success in the automobile industry these days is differentiation. By differentiation, I mean that consumers want to buy and drive an automobile that excites them and is different from anything else being sold. With GM being a truck-producing Goliath, Toyota has come out with two vehicles, the Toyota Prius and the Scion brand, that consumers are salivating over.
The Prius has been a success because it utilizes the hybrid (gas/electric) engine technology, which provides an average of 51 miles per gallon and is supposed to cut down on fuel emissions. The other developing success story is the company's Scion unit.
I was browsing through the Scion website last night, and the experience was both fun and intriguing. Scion's pricing strategy is similar to that of GM's Saturn unit; the no-haggle, preset prices and ability for customers to put together their own vehicle online (and drive away in a week) has been quite popular with 20-somethings, hip senior citizens, and everyone else looking to spend a little (starting at $14,000) to get a whole lot. The coolest Scion vehicle is the xB, a SUV/wagon/touring vehicle that the company professes is "all about attitude."
While Toyota's production targets are an important part of its planning process, its continued effectiveness in targeting consumer needs and wants is impressive. General Motors has recently logged some pretty impressive sales growth, but much of that was been aided by rebates and other incentives. Add on the fact that GM and Ford are well behind Toyota in the race to bring hybrid vehicles to market, and shares of Toyota should be considered as an attractive alternative to its U.S. counterparts.
If you love to drive, then motor on over to these takes:
Fool contributor Phil Wohl spent more than 12 years on Wall Street and dreams of owning a '64 1/2 Mustang convertible one day. He does not own shares of any of the companies mentioned.
