Threat Is Real

For the first time ever, Toyota Motor Corp. sold more cars and trucks in the U.S. than the Chrysler Group in August. In fact, it came close to passing all of DaimlerChrysler AG in the U.S., including Mercedes-Benz.

Since Daimler-Benz AG purchased Chrysler Corp. in 1998, their combined U.S. market share has plunged from 17.2% to 14.2% through the first eight months of this year. Although DC's losses have slowed since they first dropped precipitously in 2001 to 14.5%, Toyota's market share has grown.

Year-to-date share is 11.2% for Toyota, compared with 8.8% in 1998. It has risen nearly two percentage points since 2000. In 1998, more than eight percentage points of market share separated the new DaimlerChrysler and Toyota. Now that gulf has narrowed to just three. If current sales trends continue, Toyota could surpass DC in two years.

Toyota claims that to catch DC, it would need yet another new North American assembly plant, in addition to the two it already has under construction, plus more dealers. But even without these benefits, Toyota's market share is predicted to continue rising, although it's also likely the auto maker's recent meteoric growth will slow.

Besides its reputation for top-quality products, Toyota's sales in recent years have been fueled by a slew of new cars and trucks in key new segments. Between 1996 and 2002, Toyota added four products, including three cross/utility vehicles (CUVs); a grouping it created with the car-based RAV4 in 1996 and further expanded with the Lexus RX 300 and Toyota Highlander.

Toyota also jumped into the front-drive minivan market with the Sienna in 1997 and the large SUV segment with the Sequoia in 2000. Although critics say it still does not compete with Big Three versions, the Tundra fullsize pickup gave Toyota a 100,000-unit-per-year toehold in one of the last of the Big Three bastions.

Finally, the Matrix sportwagon debuted in 2002, and instead of merely complementing its Corolla, it has turbocharged Toyota's sales in the small-car market.

And Toyota is fortifying its Lexus luxury brand in 2004, expanding its new youth-oriented Scion line and coming with the new FJ small SUV in 2005. Plus it's preparing to build a big new fullsize pickup in San Antonio, TX, starting in 2006.

But once it has the major market segments covered, Toyota won't be able to make big new gains as easily. It's going to have to fight to maintain what it has and stave off reinvigorated competition from the Big Three and other foreign-based companies.

Even so, Toyota has the advantage that it can add production capacity and still sell what it builds almost on reputation alone. DC, on the other hand, is struggling and has too much capacity. Even its vaunted Mercedes brand's quality reputation has taken a beating lately.

DC's fate hinges far more on what it does in the next several years, rather than what Toyota does. Whether or not it remains in the Big Three will be determined by the success of its redesigned Jeep and Dodge trucks, Dodge Neon, and its large sedans — which are switching from front- to rear-drive. Mercedes is expanding its North American product lineup. That should help, too.

But with competition from all corners getting fiercer, the best DC might be able to hope for is to keep its market share flat over the long run, no matter how good its products are.

At the end of the day, Toyota and DC may not continue to follow their sales trend lines, and Toyota may never overtake DC. Numerous brands and auto makers have pulled themselves out of sales spirals before. Most recently, GM's Cadillac Div. and Nissan Motor Co. Ltd. have made impressive comebacks.

But if DC can't wow consumers with spectacular new products in the very near future, Toyota really could steal DC's position permanently as a member of the “Big Three,” and it could happen in just two years.