Toyota Takes Some Lumps in 2007

What auto maker this year experienced the defection of several high-profile executives, backlash from environmental groups, increasing reliance on incentives, a slowdown in sales and diminished perceived quality? In past years, the correct answer could have been General Motors Corp., Ford Motor Co. or Chrysler LLC. But in 2007, it was Toyota Motor Corp.'s U.S. operations that lumbered through one

What auto maker this year experienced the defection of several high-profile executives, backlash from environmental groups, increasing reliance on incentives, a slowdown in sales and diminished perceived quality?

In past years, the correct answer could have been General Motors Corp., Ford Motor Co. or Chrysler LLC.

But in 2007, it was Toyota Motor Corp.'s U.S. operations that lumbered through one issue after another, demonstrating this Japanese juggernaut may be vulnerable after all.

With a 16.3% U.S. share, topping both Ford and Chrysler, Toyota is perhaps more American than ever in sharing the ups and downs of the U.S. new-vehicle market.

The “downs” most notably included losing to Chrysler in August both Deborah Meyer, former Lexus Div. marketing chief, and Jim Press, then president of holding unit Toyota Motor North America in New York and the auto maker's best known U.S. executive, who spent 37 years with Toyota.

In October, Jim Farley, Lexus Div. general manager and another highly visible U.S. official, departed for a global marketing position at Ford.

In typical Toyota fashion, the auto maker shrugged off the losses and quickly reshuffled its executive ranks.

Promoted to president of Toyota Motor Sales U.S.A. Inc. is Jim Lentz, who spoke with Ward's in November shortly after assuming his new post.

Lentz, Toyota's chief salesman in the U.S., acknowledges Toyota will fall below initial projections of 2.68 million units this year.

He blames this on the near-collapse of the new-vehicle market in Toyota's stronghold regions due to the housing slump, which dinged monthly sales in late summer and continues with no relief in sight.

“Today the market's down roughly 3%,” Lentz tells Ward's in his office at TMSUSA headquarters in Torrence, CA. “If you look at Southern California, Northern California and Florida, those markets are off almost 10%. Those three markets also represent 25% of Toyota's business.”

Lentz's “gut feel” is this year's seasonally adjusted annual rate will be 16.1 million units, with 2008 not much better. Toyota had expected a 2007 SAAR ranging from 16.5 million units on the low end to 16.8 million.

“Next year will be very similar, with the first half being softer and the second half being stronger,” he predicts.

Toyota expects its 2008 sales increase will be smaller than in recent years.

“Next year feels more like that 4%-5% number than it does that 10% from prior years,” Lentz says, adding Toyota has not finalized a sales target for the year.

Through October, Toyota's U.S. sales stood at 2,199,238 units, up 3.9% from like-2006, ]Ward's data shows.

Of Toyota's three brands in the U.S., Lentz says only Scion will see a drop this year, down about 30,000-35,000 units from last year's 173,034.

Lentz blames this on the launch of two new models for Scion's 3-vehicle lineup in 2007: the next-generation xB and new xD, the latter replacing the xA subcompact.

“Production was dark three months on one and four on the other,” he says, referring to a long selldown of the first-generation xB and xA in late 2006 and early 2007.

The new xB went on sale in May, but it wasn't until October that a year-on-year increase was seen for the vehicle. Many have criticized the Americanization of the new xB, growing in size and stepping away from the original's sharp-edged Japanese design, as a reason for the slow start.

Lentz blames a viral, word-of-mouth-type marketing campaign vs. a large TV blitz typical for Toyota models.

“We're not disappointed with where the volumes are,” he says of the '08 xB, noting the simmering sales are consistent with the six or seven months it took for the Scion youth brand initially to catch on.

As with most auto makers, Toyota saw many of its light-truck models slip in 2007, including its midsize and fullsize body-on-frame SUVs.

However, the relatively new RAV4 compact cross/utility vehicle benefited from the trend toward smaller car-based utes, with sales up 15.6% through October to 146,582 units.

Lentz predicts the capacity of Toyota's new 150,000-unit Woodstock, ON, Canada, manufacturing plant, slated to open next year to build the RAV4 for North America, won't be sufficient to meet future demand for the vehicle.

“We may have to continue to import a few from Japan,” he says.

Despite its sales success, the RAV4 spent much of the year hidden in the long shadow cast by the all-new Tundra fullsize pickup.

Perhaps no other vehicle in Toyota's 50-year history in the U.S. has been watched more closely than the new Tundra, which debuted in early February as an '07 model.

Toyota delayed the launch from late 2006 while awaiting production rampup of the Tundra's new 5.7L V-8 from its Huntsville, AL, plant.

Still, the launch was not smooth by Toyota's standards.

A camshaft defect found on 20 of the 5.7L V-8s early in the production run forced the auto maker to replace the faulty engines. Plus, the Tundra team was looking for a 5-star frontal crash rating from the National Highway Traffic Safety Admin. but had to settle for four.

Lentz doesn't believe delaying the launch further would have made a difference in preventing the problems.

“The camshaft issue was not a design issue,” he says. “It was a glitch in the manufacturing process that could have just as easily happened with the last generation as it did to this one.”

Toyota Dealer Outlook: Build It and They'll Be Happy

Toyota's 1,228 dealerships average more than 1,700 annual new-vehicle sales and now customer satisfaction appears to have dramatically improved the last few years.

According to the latest J.D. Power and Associates study, Toyota improved 15 points from 2006 and was one point behind Honda. It's moved up nearly 60 points the last four years.

Facility upgrades helped move the needle on customer satisfaction, says new Toyota Motor Sales U.S.A. Inc. President Jim Lentz

From 2004 to 2010, Lexus and Toyota dealers combined will have spent about $7 billion in facility improvements.

Another area Toyota dealers can expect to see tweaked this year is in vehicle allocation. Lentz says it is one area the auto maker is looking at to make sure its policies aren't forcing dealers to push cars onto its customers.

Right now Toyota dealerships are priced beyond most dealers' ability to acquire one, which is exactly how Toyota wants it. But its dealer base is aging and that means we'll start seeing some turnover in the near future. So if you're looking for a Toyota store, hang in there.

And if you're thinking about selling, now may be the time — because this probably is as good as it gets.
By Cliff Banks with Christie Schweinsberg

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