Entry into the sacred U.S. fullsize pickup truck market has been more difficult than anticipated by several of Japan’s top auto makers.
The once all-American Big Three playing field has been challenged in recent years by the launch of theTundra and Titan. But problems persist and results, so far, have been mixed for both.
Motor Engineering & Mfg. North America Inc. delayed the launch of the latest Tundra from late 2006 while awaiting production ramp-pickup’s new 5.7L V-8 from its Huntsville, AL, plant.
Still, the February launch this year 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.
Toyota engineers were puzzled when Consumer Reports earlier this year publicized customers’ reliability concerns about the 4-wheel-drive system in the all-new Tundra and continue to seek specific details.
Indeed, Toyota Motor Corp. CEO Katsuaki Watanabe has plans to add several thousand more engineers to the payroll in the next five years, a Toyota spokesman says.
Most recently, the massive Tundra drew the ire of environmentalists, who also chastised Toyota for supporting less stringent future fuel-economy regulations (Toyota sided with Detroit’s three auto makers in lobbying Congress for less-extreme mileage requirements than its fellow importers).
Despite the reliability issues and production glitches, industry analysts in Tokyo don’t see quality as a serious Tundra problem.
"The headache for (the) Tundra these days is not quality but high U.S. gasoline prices and a slowdown in the U.S. economy," says Koji Endo, equity research director, Credit Suisse Securities (Japan).
"The Tundra has been well-received," adds Chris Richter, a senior analyst with CLSA Asia-Pacific Markets in Tokyo. "I suspect most people will continue to have confidence in the product."
A massive-marketing campaign this year estimated by outsiders to cost as much as $500 million has been paying big dividends, given credit in part for the 58.2% increase year-on-year in Tundra sales to 177,336 units in the first 11 months of 2007, according to Ward's data.
Since launch, close to 40% of Tundra sales have been to Toyota loyalists, with the remainder conquest sales at the expense of competitors. Adding piquancy to speculation about future sales prospects is the drop in incentives offered Tundra buyers in October, from $3,500 to $2,500 per vehicle.
Richter, who checked the Tundra’s base price in 30 different trim lines, found the new models were priced about $3,000 higher than the earlier ones. "Toyota has not been giving up that much on a transaction basis," he says.
Richter’s survey of incentives also indicates they vary by zip code, targeting markets where Toyota is seeking more traction.
Among these is the Southern belt, which traditionally has been a tougher sell for Japanese vehicle makers than other regions, says Endo, who notes a concentration of effort by Toyota there.
Given the sharp hikes recently in the price of corn, he is not sure about the benefits of flex-fuel vehicles for any auto maker but expects their addition to the lineup, along with diesel and hybrid versions, somewhere down the road will help Tundra sales.
Toyota has not confirmed a diesel or hybrid Tundra variants but recently said it would bring an E10 flex-fuel version to market within a year.
Meanwhile, Toyota Motor Sales U.S.A. Inc. is sticking with its target of selling 200,000 Tundras in calendar 2007. While executives admit it may turn out to be a photo finish, their hopes are buoyed by the Tundra’s 43.2% jump in deliveries for November.
“It’s going to be close,” says Bob Carter, group vice president and general manager-Toyota Div., citing rising gas prices and other economic factors that are slowing the market overall. “That’s still our goal,” he tells analysts and the media in a recent conference call.
Japan’s industry experts agree. “Sales won’t roar past the target but will probably be a bit shy," Richter predicts. Agrees Endo: "Sales will probably be a little short."
Even if the Tundra meets it goal by year-end, it still has a ways to go to match its U.S. competitors. The Tundra sold 14,988 units in November, compared with year-ago’s 10,469, Ward's data shows.
In comparison, theF-150 sold 42,231 units, despite a 13% drop from prior-year’s 48,543. Chevrolet delivered 38,122 Silverados in the month, down 14.1% from like-2006, while Dodge Ram pickup sales fell 12.9% from year-ago to 24,243. The domestic auto makers blame an ongoing slump in new-housing construction for falling demand.
Related document: <I>Ward's</I> U.S. Light Truck Sales by Line and Brand
The Japanese analysts’ take on the Titan, with sales through November down 8.5% to 60,961 units compared with year-ago, reveals deeper problems forNorth American Inc., whose unofficial annual sales target of 100,000 vehicles is no where in sight.
The Titan sold only 5,001 units in November, for a 2.8% gain over year-ago, according to Ward's data.
"As a result of serious production problems initially and a critical Consumer Reports finding, the Titan (launched in 2003 as an ’04 model) was branded early as a product to avoid,” says Richter. “Nissan has corrected quality but a perceived problem is harder to fix than a real one."
Richter expects sales to limp along until a full-model change is made, noting, "The focus now is to control the degree of the decline."
A Nissan spokesman confirms "all quality issues have long been resolved," but concedes that "despite consistent positive reviews from Titan owners, the press and other media, (the) Titan remains on the do-not-buy list of some consumers."
Endo says Nissan’s strategy for the Titan was OK, but quality was a very big issue in the beginning and the launch timing was bad. "Now the Titan is 4 years old, relatively outdated, and a new model is still two years away," he says.
Despite the disappointments and shortfalls, Nissan remains enthusiastic about the fullsize U.S. pickup market, giving the Titan a refresh in May and adding popular upgrades to give it more consumer appeal.
These include bigger wheels to accommodate an improved braking system, a Bluetooth wireless cell-phone system as standard equipment and a long bed option.
The chief sales targets are fullsize truck owners who usually share a garage with an imported vehicle, the spokesman says, noting about 40% of Titan sales are to Nissan loyalists, while 60% are conquests. To entice both groups, the cash-back incentive on ’08 Titans currently is $5,000.
Still, says Jeff Schuster, executive director-global forecasting, for J.D. Power and Associates, "Titan obviously was a miss."
Yet any suggestion that hyper profit-conscious Nissan Motor Co. Ltd. CEO Carlos Ghosn might be getting ready to pull the plug on the Titan project is dismissed firmly by Endo, who insists, "No way."
Another factor hurting the Japanese competitors it that the U.S. fullsize pickup market has been declining in size, with annual sales of 2,498,706 units in 2004; 2,485,589 in 2005; 2,229,526 in 2006; and 2,188,000 units in 2007, according to a Ward's forecast.
Related document: U.S. Fullsize Pickup Sales (2007 Estimated)
Both Toyota and Nissan indicate they are in that market for the long pull, shrugging aside near-term hits and misses as the result of growing pains.
Richter says the Tundra already has become a significant model, accounting for 7% of the auto maker’s U.S. sales volume. With Tundra sales approaching 10% share of this attractive segment, Endo foresees Toyota hitting its sales goal as early as 2008 or 2009.
"Competition will remain fierce, and fierce competition usually means lower profits,” says Richter. “But the U.S. Big Three don’t have a good track record in fending off Japanese and other foreign competitors."
Toyota and Nissan leaders hold opposing views of their current U.S. prospects.
"I see a tough market in the United States – a shrinking market, higher prices of raw materials and no pricing power," Carlos Ghosn told an industry conference in Tokyo in late October, adding "I would love to be wrong."
Toyota has revised its overall 2007 sales forecast for the U.S., downward 80,000 units to 2.6 million vehicles, yet Watanabe basically remains bullish.
"The U.S. population is going to continue expanding, and (economic) fundamentals are very strong," he recently told an industry conference in Tokyo.
Industry experts say the question now is how much of the fullsize pickup market can the Tundra and Titan capture and hold, especially with segment sales forecast to remain soft for the foreseeable future.