Toyota Back From Brink With New Models, Brighter Outlook

This is part of a series of executive interviews on the state of the North American auto industry.

Toyota finds itself on the road to recovery in 2012 after suffering through last year’s natural disasters that included Japan’s earthquake and tsunami and Thailand’s 100-year floods.

Those came on the heels of the auto maker’s unintended-acceleration scandal of 2010.

While roughly 70% of the vehicles Toyota sells in the U.S. are built in North America, most parts are sourced from Asia, and local production was affected by supply-chain problems resulting from the 2011 overseas catastrophes.

But this year sales of the critically important redesigned Camry midsize sedan, along with the Prius hybrid range, are back on track.

Thanks to replenished inventories, Toyota’s U.S. market share, while still off a record 17.0% in 2009, grew 1.8 percentage points through October compared with year-ago’s 14.4%, WardsAuto data shows. The gain is in contrast to some competitors’ flat or declining share, including General Motors and Ford.

Toyota in 2012 unleashed a profusion of all-new and redesigned models in niche segments including the subcompact Prius C hybrid, battery-electric RAV4 cross/utility vehicle, Scion FR-S sports car and upcoming Avalon large sedan.

More vehicle launches are to come in the next year, including the next-generation, high-volume Corolla compact car and RAV4 CUV.

In an interview conducted via email, CEO Jim Lentz sheds some light on Toyota’s 2013 outlook, its North American capacity plans and why the new Corolla is expected to keep the car near the top of its segment.

WardsAuto: Does Toyota have the capacity in place to meet expected market growth in 2013? And will you add production shifts or expand capacity in other ways to meet growing demand?

Lentz: In the past year, we have announced capacity increases at several North American plants (including investing $400 million in Princeton, IN, for 50,000 more Toyota Highlander CUVs annually and $100 million for 30,000 more units a year of the Lexus RX CUV in Cambridge, ON, Canada). More North American localization is currently being studied. However, for 2013 we believe we are right-sized.

WardsAuto: What makes you most optimistic about 2013?

Lentz: There are many positive indicators out there, including pent-up demand and low interest rates. We anticipate another strong year for product introductions, a gradually improving economy and steady demand for cars primarily due to the aging U.S. fleet.

The car business is all about the ‘Three Cs’: cars, credit and confidence. We have two of the three, with more fresh products than we’ve seen in a decade and plenty of credit, but the wild card is consumer confidence.

WardsAuto: How critical is it for Toyota to recruit outside the typically insular auto industry to keep pace with rapidly changing technology, such as autonomous vehicles, infotainment and social-media marketing?

Lentz: (Toyota’s U.S. sales unit) has done limited external recruiting over the last several years. However, we continue to hire externally from college programs that support the sales, marketing, finance and strategy functions in the company. Candidates for these positions have a wide range of backgrounds and related degrees from over 30 different colleges and universities.

We do recruit externally for experienced hires when we don’t have the expertise in-house. Typically, these positions are related to information technology, legal/compliance, strategic research, engineering and social media. Our goal is to hire the best possible person we can with the knowledge and expertise for the position, regardless of the industry they currently work in.

WardsAuto: Toyota has been gaining market share back, but you had a massive recall, 7.4 million units globally in early October, for defective window switches. How big a setback are such large recalls to your business?

Lentz: We don’t expect to see any significant drops in sales due to the window-switch recall. Cars are very complex, and recalls are a part the automotive business. Most consumers understand that things can go wrong with their products; they want to be reassured you will be open about them and take full responsibility for fixing the issue.

WardsAuto: How does Toyota's recent announcement to pull back on electric vehicles fit with the California Air Resources Board’s decree for auto makers to sell more zero-emissions vehicles? Can you capture a 15.4% ZEV share in the state by 2025 without EVs?

Lentz: The recent announcement to reduce the number of (Toyota) iQ EVs was referring to the global plan, significantly reducing the number of models built for Japan and eliminating units for Europe. Our plan for the U.S. (for the Scion iQ EV) from the beginning was for a “very small fleet of vehicles aimed at car-sharing programs in urban and campus environments,” which is precisely what we are doing.

Actually, EVs will be an important component in meeting our ZEV mandate commitment. The 90 iQ EV units that we plan to bring to the U.S. in the fourth quarter will be placed in car-sharing programs, which qualify the vehicle for additional (amplified) credits.

We have also committed to building and selling about 2,500 RAV4 EVs from 2012-2014. The 100-mile (161-km) range of this vehicle also amplifies credits over shorter-range competitors.

WardsAuto: Toyota next year has an all-new Corolla coming. How do you plan to stay on top of the compact-car segment, given the fierce competition?

Lentz: As with any new vehicle, you want to surprise customers with bold, progressive style, dynamic driving characteristics and class-above features combined with quality, dependability, safety, fuel efficiency and high resale value. In short, the Corolla will be the best all-around product in the compact segment.

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