Toyota Optimistic in the U.S. Market

NEW YORK — North America, an over-the-hill, mature market for cars and trucks?

Don't believe a word of it, warns Toshiaki Taguchi, president of Toyota Motor North America Inc., convinced that the conventional wisdom is unwise.

“We see significant market growth continuing,” says Taguchi, a confirmed census watcher who finds recent data heartening.

In the 20 years ending 2000, the U.S. population has expanded 24% to 281.4 million, per capita gross national product is up nearly fourfold to $29,451, and the total number of motor vehicles in use has increased 53% to 213.3 million.

And cars are becoming more affordable, too. Taguchi reports the average 30 weeks' salary needed to buy a new car in 1992 has shrunk to 20 weeks today.

The inescapable conclusion reached by Toyota strategists: More customers with bigger incomes will raise the U.S. sales plateau higher, and an 18 million-unit year will be just another milestone on the road to increasing demand.

Taguchi foresees most future growth spurred by SUVs, cross/utility vehicles and pickups and is impressed by the diversity of new models being offered as auto makers broaden their lineups.

“Even though we all talk about reducing costs by having fewer platforms, we still are producing more and diverse models,” says Taguchi in an exclusive interview with Ward's.

He adds that the Tundra, introduced in 1999, now has 4.5% of the fullsize pickup market and has become an important Toyota model, but he points to one unavoidable road hazard. “Pickup customer loyalty is very strong, which makes things more challenging for us.”

And luxury buyers are becoming more discerning. “Baby Boomers are more prosperous than previous generations and are looking for higher-end products,” says Taguchi, pleased that Toyota's Lexus continues to be the top-selling luxury brand in the U.S.

He anticipates growing demand for navigation systems, already standard on the top-of-the-line Lexus SC 430 and available on other Toyota models, priced from $1,830 to $3,000.

Taguchi considers gas-electric hybrids a niche sector with a bright future. Toyota has four in production: the Prius sedan, Crown sedan, Estima minivan and Coaster bus.

Toyota claims about 90% of the world hybrid market. Prius sales worldwide since 1997 recently edged past 100,000 units. He hopes sales will rise to 300,000 by around 2005.

Late this year, Toyota will launch the prototype FCHV-4 fuel cell hybrid, based on the Highlander SUV, with 10 vehicles in both Japan and the U.S. leased to carefully selected organizations for real-world testing.

“The first launch of a fuel cell hybrid, the ultimate eco car, is a significant step even though only 20 vehicles will be available, since Toyota is bringing this product out of the laboratory,” says Taguchi. He adds that Toyota has an agreement with General Motors Corp. to share fuel cell technology, which still is at the experimental stage.

Taguchi says the main problem for Toyota in the U.S. will be maintaining quality and competitiveness in a market where brand loyalty is strong and the nationality of a vehicle has less meaning.

The North American market now is crowded by more foreign auto makers than ever before, with market shares in October of 61.9% for the U.S. Big Three, 27.8% for the Japanese makers, 6.8% for the Europeans and 3.5% for the Koreans.

“Newcomers will always have a chance. That's what Free Trade America is all about,” says Taguchi, noting the similarities between hungry Korean auto makers today seeking footholds in the U.S. and the Japanese arrivals of yesteryear.

Nor does he minimize the threat from Big Three rivals. “The auto business is a people business,” he says. “They are formidable contenders with a big customer base.”

He cites a new survey by AutoPacific Inc., a California market research company, of 34,196 people who bought a new car or truck a year ago.

Asked about a future purchase, 36.8% indicate they favor a Ford, 36.6% would opt for a Chevrolet and 31.7% most likely would consider a Toyota.

Whatever consumers want, Toyota hopes to tempt them. Five new Toyota and Lexus models have been introduced this year, and three more will be launched in both 2003 and 2004.

An ambitious plan now under way will expand existing manufacturing capacity in North America from 1.25 million units at present to 1.5 million by 2005, when Toyota's total investment here will reach $13 billion.

Yet even this isn't considered enough. Four assembly plants — three in the U.S. and one in Canada — already are operating full bore, and a fifth will begin producing Tacoma trucks in Mexico in 2005. A sixth plant is expected to be built in Texas by 2005.

As production has shifted from Japan, imports have shrunk dramatically from 77% of total North American sales in 1989 to about 33% today.

Moreover, Taguchi now sees sales opportunities abroad. “It is my personal desire that North America become an export base,” he says. Some 400 Avalons and 1,200 Voltz now are being shipped each month to Japan, and the company is considering exporting trucks to Latin America.

Closer to home, Taguchi estimates a 2002 sales year in the U.S. of 16.5 million to 17 million units. He sees a 4% to 5% increase in sales for Toyota to 1.8 million-plus, bringing the auto maker ever nearer the current target of a 2 million-vehicle sales year.

The new Corolla is so popular that the Canadian and New United Motor Mfg. Inc. plants can't keep up with demand. Toyota has been importing about 2,200 a month from Japan.

Still, selling cars doesn't get any easier, and Taguchi says flatly, “the automobile business cannot exist without incentives. They will be with us forever.” He declines to reveal what sales incentives cost Toyota, but says they are among the lowest in the industry.

Taguchi doesn't say so, but 2 million sales annually is only an interim target. The unofficial aim likely is to increase U.S. market share, currently at 10.5%, to 15% within the next decade to meet the new global goals set by planners at headquarters in Japan.

Nor is North America likely to lose its clout as a money maker, providing 65% to 70% of total Toyota Motor Corp. profits, according to industry analysts in Tokyo.

It has taken 16 years to build the first 10 million Toyotas in North America. The next 10 million will be produced in half that time, says Taguchi, and 10 million more afterwards “shorter than that.”