Special Report

2007 Year in Review

The year 2007 will be remembered at Toyota Motor Corp. as one of great change.

In its largest market, the U.S., Toyota overtook Ford Motor Co. to become the No.2 U.S. auto maker based on sales. But the company also lost several experienced executives to American rivals, reversing a longstanding pattern that has seen overseas-based OEMs fill their ranks with Detroit exiles.

Toyota passed Ford in total U.S. sales in July, with a tally of 1.56 million vs. Ford’s 1.53 million. By year’s end, its lead had grown to more than 100,000 units – 2.62 million to 2.5 million.

However, 1.2 million units still separated Toyota and No.1 General Motors Corp., according to Ward’s data.

Toyota pulled back by 80,000 units on its 2007 U.S. sales goal of 2.68 million, blaming soft sales in key markets, as well as model changeovers at its Scion youth brand.

In August, the industry was shocked as longtime Toyota executive Jim Press, promoted in 2006 from president of Toyota Motor Sales U.S.A. Inc. to president of the auto maker’s sales and manufacturing holding unit, Toyota Motor North America, departed for a top position at Chrysler LLC.

Press’ departure came on the heels of Lexus marketing chief Deborah Wahl Meyer’s announcement she also was joining the company formed by the dissolution of DaimlerChrysler AG.

Press, who spent 37 years with Toyota and was the auto maker’s highest-ranking American executive, was unhappy with his figurehead role at TMNA, according to a Toyota insider. It took him away from the sales side of the business, which he loved.

Press hinted as much in an interview on Detroit radio station WJR, scant weeks after joining Chrysler.

“Toyota is a very successful organization,” Press said at the time. “They’ve got their act together, and the course is set. This is a chance to not sit by the window and watch things happen but (to) be part of history and be part of making things happen.”

Toyota quickly placed Shigeru Hayakawa at the helm of TMNA and named David Nordstrom, former head of marketing for Toyota Financial Services, to take over for Meyer at Lexus.

But the shuffling wasn’t over. In October, the man who many had expected to one day succeed Press, Lexus Group Vice President and General Manager Jim Farley, announced he was joining Ford Motor Co. as its new chief global marketer.

Farley said it had been a personal goal of his to work for both Toyota and Ford. His grandfather was a Detroit-area Lincoln-Mercury dealer, and Farley spoke often of the Mustang he restored as a teenager and drove from California to Detroit.

Replacing Farley atop Lexus in the U.S. was Mark Templin, who had once headed Lexus marketing but most recently oversaw the Scion youth brand.

Jack Hollis, former corporate manager for Scion, replaced Templin as vice president.

Toyota’s U.S. brain drain was heavily covered in the media, with some speculation it was the result of Toyota’s still Japan-centric management. (Upon his appointment in June, Press was the lone American on the auto maker’s board of directors.) Other reports suggested Toyota’s executive pay structure was uncompetitive.

“We always benchmark other industry competitors and other industries, but in the case of headhunting, they always offer much more money than (our executives) are currently receiving,” Hayakawa told Ward’s in October in Tokyo. “So sometimes we can compete and sometimes we cannot.”

Hayakawa said each of the three departing executives gave different reasons for leaving Toyota. And money was just one part of the equation. Opportunities to take on new challenges and occupy a higher rank also were cited, specifically in the case of Farley, he said.

Hayakawa was high on Toyota’s remaining U.S. executives, specifically Jim Lentz, who was promoted in November from executive vice president to president of TMSUSA, taking over Press’ former title.

Toyota in 2007 announced yet another new North American manufacturing plant would be built, this time in Blue Springs, MS, near Tupelo. Mississippi beat out 25 competing states, including Arkansas and Tennessee. It was expected to come online in 2010 and build the Highlander midsize cross/utility vehicle. Plant capacity was said to be 150,000 units.

The Highlander and its hybrid-electric variant were among the many next-generation or all-new models Toyota introduced in North America during the year.

Other debuts included the Lexus LS flagship sedan, the 600hL HEV; the next-generation Scion xB; the all-new Scion xD, which replaced the xA subcompact; and Lexus IS-F performance sedan. The Toyota Land Cruiser and Sequoia large SUVs, along with the Tundra fullsize pickup truck, ruffled the feathers of environmentalists, long allies of Toyota due to the Prius and the auto maker’s other HEVs.

The Tundra made its anticipated debut in early February, but much to Toyota’s chagrin, not all was smooth sailing.

Just a month after it bowed, Toyota placed incentives on the vehicle, blaming the U.S. market’s competitiveness in the segment.

A camshaft defect involving a small number of Toyota’s new 5.7L V-8 engines soon came to light, leading the auto maker to take the extreme step of replacing the faulty engines.

Next, the Tundra failed to achieve a 5-star rating in National Highway Traffic Safety Admin. crash tests, earning a 4-star approval instead.

Lentz said the camshaft issue was not a design flaw. “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,” he said.

But Lentz was unsure about the launch timing’s effect on crash-test results. “No one was pleased with what happened, but it didn’t have an impact on our sales volume.”

In Japan, Toyota launched a slew of new or revised models in 2007, with two Lexus LS HEV models bowing in the spring.

The second-generation Premio and Allion sedans debuted in summer, as did the Voxy and Noah minivans, and the Ist – the first generation of which was sold in the U.S. as the subcompact Scion xA. The Ist was classified as a compact car in Japan.

SUVs were on tap in later months, with Japan getting the new Land Cruiser and an all-new CUV called the Mark X ZiO, which accommodated four to seven passengers depending on how its interior was configured.

Toyota, like many of its other domestic competitors, struggled for much of the year as the Japanese auto market continued to retract.

However, there were signs of a comeback as Toyota monthly sales increased in October for the first time in two months and, adding its Daihatsu and Hino subsidiaries, deliveries rose for the first time in 14 months.

Despite the additions of new Lexus models, the brand struggled, with sales down 33.3% in October from year-ago.

In Europe, Toyota released the new U.K.-built Auris compact hatchback in the year’s first quarter. The Auris, combined with the Corolla sedan, racked up 272,929 sales through November, up from 214,405 units in the same period year-ago.

Lexus continued to make headway in Europe, albeit at a moderate pace, up 6.4% in the first 11 months to 50,720 from 47,687 in like-2006.

Tetsuo Agata, executive vice president-R&D and manufacturing for Toyota Motor Europe, told Ward’s in March that despite the sales growth of Lexus, European production would not be feasible for some time.

“If sales of Lexus here in Europe grow to 100,000 for one model, like an RX 350, we can proceed,” he said, adding he hoped this could happen within 10 years.

Toyota also continued to focus on growing sales in developing markets, specifically China and India, finding greater success in each than the prior year.

In late May, Toyota began production of the new Corolla compact car at its joint venture with Tianjin FAW Toyota Motor Co. Ltd. The assembly of the Corolla at the No.3 plant added 200,000 units annually to the JV’s total annual capacity, taking it to 420,000 vehicles between three plants.

Toyota’s China sales jumped 65% to 438,000 units through November, causing it to reportedly revise its full-year 2007 sales goal from 430,000 units to 480,000 due to strong sales of the Corolla, Camry midsize sedan and Vios subcompact.

In India, sales growth was not quite so strong, up 11% from January through November to 49,500 units. Yet, Toyota had enough faith in the market’s prospects that Chairman Fujio Cho said the auto maker was considering India as a sight to build Toyota’s coming global small car for emerging markets.

Cho also confirmed a new 100,000-unit assembly plant would be built in 2008 next to the existing Toyota Kirloskar Motor Ltd. plant in Bangalore, which had a production capacity of 60,000 units annually.

Meanwhile, Toyota looked to hold its title as the No.1 selling auto maker in Australia, with sales or 216,034 units through November beating full-year 2006 sales of 213,847. However, an executive warned the federal government that unless import tariffs were held at the current rate of 10%, the auto maker would be forced to move production.

Toyota said it shipped 60,000 vehicles a year from its Melbourne plant to other markets, mainly the Middle East.

“The previous plan was to reduce (the tariff) to 5%,” Executive Vice President-Global Planning Tokuichi Uranishi was quoted as saying at October’s Tokyo motor show. “But we want a freeze at 10%. A further reduction would bring us serious damage.”

Toyota had a “lot of alternatives” for sourcing models such as the Camry, he said. The car was being assembled at six other plants worldwide in addition to Melbourne.