TORRANCE, CA – 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 beenCorp., Motor Co. or LLC.
But in 2007, it wasMotor 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 bothand , 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 continued through the end of the year with no relief in sight.
“Today the market’s down roughly 3%,” Lentz says in his office at TMSUSA headquarters. “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 American-ization 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 off 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.”
Likewise, Lentz doesn’t know if more time for the launch would have resulted in a 5-star crash rating. “No one was pleased with what happened,” he says, “but it didn’t have an impact on our sales volume.”
Toyota acknowledges it may fall slightly short of the much-repeated 200,000-unit calendar 2007 sales goal for Tundra. Lentz says hitting the target depends on the success of the last two months, especially December, during which the annual “Toyotathon” marketing campaign is held.
“The week we have Toyotathon is the biggest sales week of the year for us,” he says. “There’s really no reason to believe Tundra won’t benefit from that as much as everything else, provided gasoline is not 5 bucks a gallon.”
Through October, Tundra sales stood at 162,348 units, Ward’s data shows.
The massive Tundra drew the ire of environmentalists, who also chastised Toyota for supporting less stringent future fuel-economy regulations (Toyota is siding with Detroit’s three auto makers in lobbying Congress for less-extreme mileage requirements than its fellow importers).
Speaking the day after a 3-judge panel in California overturned the Bush Admin.’s light-truck and SUV fuel-economy rules, Lentz says, “I think we’re in a position today where we just need Congress to act on new standards,” adding those standards need to be “federally based so (they don’t) impact customers and product offerings and distribution of product going forward.”
Perhaps soothing to environmentalists was expanded sales of Toyota’s Prius hybrid-electric vehicle, now the eighth best-selling passenger car in the U.S., with 150,272 deliveries through October, Ward’s data shows.
Toyota still predicts a 175,000-unit year for the car, and Lentz says its future is bright, citing the Prius’ “unique personality” and performance characteristics as reasons for its staying power.
As a marketer, he says a Prius brand, similar to that of Scion, is a good idea.
“People don’t talk about driving an xA or an xB or an xD. For the most part, they drive a Scion,” Lentz says, noting Toyota has sold more HEVs this year, about 227,000, than total combined vehicle deliveries for the Mercedes,and Saturn brands in the U.S.
While Lentz won’t divulge future product information, Ward’s data shows new small and midsize CUVs due next year, as well as the next-generation 4Runner SUV and Lexus RX CUV.
In addition to the ’09 Corolla and Matrix models and the Lexus LX SUV and IS-F performance sedan already announced, Toyota plans to launch 12 more new or “refined” models in 2008.