Far be it for me to extend TTAC’s reputation for putting a negative spin on news trumpeted as a sign that the auto industry’s dark days are coming to an end. But this story—“Toyota sees turnaround, boosts U.S. output”—is making the ’rounds, and it bears closer examination.
The headline arrives via Automotive News [sub], who reports that Toyota will ramp up production of six of its best-selling models over the next three months. “‘We see a turnaround coming,’ Bob Carter, general manager of Toyota Division, said during a conference call.” What do you mean “we,” white man? Toyota or the whole US automotive market?
Reading between the lines, it seems that AN was trying to get Carter (great movie) to say this wasn’t just a ToMoCo thing. “There was an improvement [in May] on the retail side of the business for the entire industry . . . We may be witnessing a slight rebound in the industry,” he said.
Or not, after you factor in incentives and such. And that’s only relative to the previous month, which sucked Big Style. And anyway, how many more vehicles are we talking about?
North American production will increase by 65,000 units over the previous plan for the three-month period as Toyota boosts output of its Camry, Corolla, Sienna, RAV4, Tacoma and Tundra models, Carter said. Toyota’s North American total production in June, July and August of 2008 was 349,835 units, including Lexus models.
Just to keep that in perspective (sorry, must be done), that’s 65,000 units over the previous plan, which was . . . what? In other words, its highly likely this “good news” simply means that Toyota’s not cutting production as deeply than they would have, rather than “adding” new units to production.
The US auto industry is not out of the woods yet. Not by a long chalk.
Optimism is all these automakers have right now. Toyota sees a turnaround for the industry this year, Big Al foolishly thinks the economy will recover this year.
It is just a bunch of hot air.
Locally, unemployment fell this month. Maybe Toyota’s looking at a combination of upticks and an increase in consumer optimism and making appropriate plans to deal with some economic recovery.
OTOH, Maybe Toyota’s looking at some slide in market share and thinking they should counteract that to some extent, lest they exit the recession with way too much capacity for their market share.
Maybe in addition to the production {increase | decrease in decrease | whatever} they’re going to take a calculated risk and ramp the incentives a little more. Maybe that doesn’t bode well for long term resale values but maybe Toyota’s looking at this as more, “I don’t have to outrun the bear (market), I just have to outrun GM.”
Maybe Toyota is also looking at the wind-down of Pontiac and whatnot and thinking that they want to be positioned to pick up abandoned former brand loyalists. Especially ex-Saturn owners.
I don’t think Toyota wants to exit the recession back in a distant third place.
They’ve learned GM Speak (circa 1970’s).
It’s not just that first roll-the-dice Hyundai purchase by the cash strpped that Toyota needs to worry about; it’s those buyers a decade from now trying to remember exactly why Toyota is supposedly better than Hyundai. Toyota is to reliability as Volvo is to safety. In the long run there is nothing to be gained from posing as the exclusive purveyor of that attribute which is rapidly becoming ubiquitous. Toyota really needs to step up its game, and soon.
The Canadian Plant in Woodstock, Ontario stepped up production of the RAV4 on June 1st, as well as asking for overtime, I think they still only run one shift there!
Selling double digit percentages fewer cars than a year ago is not a turnaround. Especially when compounded with double digit losses each of the previous years.
I thought most of their lines were shut down. To go from 0 output to even 2 units a day as the 2010s come along would constitute an increase in output, wouldn’t it?
Unemployment and GDP reports are lagging indicators. Some leading indicators point to a strong likelihood of improvement. Who are we to question the business decisions of a company that has to actually act on decisions?
The New York Fed calculates a Probability of U.S. Recession Predicted by Treasury Spread (using the interest spread between 10 Year and 3 Month Treasury rates). Their Recession predictor results in 1.54% estimation of recession for May 2009.
http://www.newyorkfed.org/research/capital_markets/allmonth.xls
And we should bring in Bertel to talk about how the BDI (Baltic Dry Index) has been heading up… it’s now over 4,000.
But I guess it’s easier to just do business planning using gut feel and magic 8-ball predictions. Maybe Toyota should stop paying heed to any economists when they do their short term and long term planning.
RF: There’s a stark difference between operating plan and operating forecast. Sure, their production numbers are down from a plan set 12 months ago; but this article suggests they are taking up their forecast as they try to project demand in the sales channel out 12 to 18 months.
I thought Toyota killed that ugly bubble butt Solara model. Are they still making that ugly cheap ass interior thing.
I think this is just wishful thinking on Toyota’s part. They might be in a GM sort of problem where they need to keep up production because they have built to much capacity(overhead) into their business model. I guess we will start seeing resale values take a hit as the incentives start flying to keep the metal moving. Pile’em high and sell’em cheap.
Well maybe they will start matching the Detroit 3’s incentives
They already are here in Canada but the whole corporate welfare thing has had the effect of penalizing companies like Honda and Toyota who don’t get down on their knees and beg governments for cash to provide said incentives and pay their exec’s big fat bonus payments.
I will NEVER EVER buy a car from a company that survives on welfare. Besides, is there a product that either Chrysler of GM makes that I want to buy? The answer is a flat NO! And I don’t see said products coming any time soon.
Strippo: “Toyota is to reliability as Volvo is to safety.”
Except that maybe they really are to reliablity as Volvo would like to be to safety.
I happened to meander over to TrueDelta.com earlier today and the last few years of Accords are running about half again as many trips/year/100 as the last few years of Camrys. Including ’08 and ’09. And the Malibu is half again as many trips as the Accords over the same timeframe.
This is a prime example of what I call “financial pornography”.
It’s like this dude this morning (some 20-year-old kid fresh out of busniess school who just passed his Series 7 exam) who is predicting that the world economy will experience a V-shaped recovery. What does this kid know about anything? Does he have a crystal ball? How do we know that we won’t have an L-shaped recovery like Japan had?
The truth is, nobody knows what will happen. Does Toyota know what the economy will be like in December? Absolutely not. Are people going to rush out to buy Camrys this year?
Let’s see now. #1 in sales… check. Bloated, overlapping product lines… check. Declining quality… check. Fiddling while Rome burns… che-e-e-ck-a-rooney!
That makes it official! The New GM has arrived.
The Canadian Plant in Woodstock, Ontario stepped up production of the RAV4 on June 1st, as well as asking for overtime, I think they still only run one shift there!
I was in my local Toyota dealer last week (Bowmanville Ontario) and a salesman friend there told me that they cannot get enough Rav4’s to meet demand.
Strippo: “Toyota is to reliability as Volvo is to safety.”
Except that maybe they really are to reliablity as Volvo would like to be to safety.
The problem is that, except for new Pri[-c]u[riou]s buyers, no owner who has been pleased with the reliability of a non-Toyota product is likely to become a Toyota conquest, statistics notwithstanding. Reliability is Toyota’s only hook. It sure isn’t price, design, interiors or the driving experience.
As to a recovery – United Airlines just told Boeing and Airbus that they will buy 150 planes from whomever can offer them the best deal.
As the economy recovers people will start to do the same thing that United is doing – take advanted of blood in the streets to buy some cheap rides.
It is this type of thinking that usually drives recoveries.
Anyone notice that Ford’s slipped past Toyota back into second place in the US?
Even if the economy starts rebounding and car sales slow their downward slide, we will not see the sales numbers we did a couple of years ago. Not for a long time, if ever. The damage done to the workforce will impact sales of everything that’s discretionary for a long time, I expect. Not only that, but I think the people that are going to buy won’t be buying as much, or will look more toward value.
Sooooo If Ford is number two and Toyota number three.Oh! imagine that, GM is number one.
Toyota and Honda sales fell farther than Ford’s or GM’s in percentage terms.
I wonder if we are seeing the flip side of dependence on fleet sales?
Toyota and Honda sales fell farther than Ford’s or GM’s in percentage terms
GM’s prices are directly subsidized by tax dollars. Apparently this is the cost of “failure.”
I thought Toyota’s success came from GM’s failures. If the price of GM vehicles are ‘subsidized’ by tax dollars, would that even matter when nobody wants to buy their cars?
If they’re (GM) first in sales, shit loads of people want to buy their cars. As their quality and reputation thereof improves and the bad ch 11 PR fades even more people will want to get their cars. IF their sales crater and they wind up selling oh I dunno, Volkswagen levels (or worse) this time next year then we can start saying they build cars no one wants.
King Bojack: “If they’re (GM) first in sales,…”
They are. But they’re first in sales at unprofitable transaction prices. GM must cut their prices below Toyondissan’s and even below their costs to compete with Toyondissan. If they tried to raise their transaction prices to Toyondissan levels, their sales would plummet.
Somewhere on TTAC, within the last few days, was a note about givebacks… Toyota’s offering about $1650 in incentives per vehicle and GM’s offering about $4060 per vehicle.
Beyond that, Edmunds.com tells me that GM cars move off the dealer lot at just $100 over invoice where Toyotas move off the lot at $1,000 over invoice.
For vehicles of equal MSRP, there’s a $3300-3500 revenue advantage to Toyota, all told, in getting the cars sold.
Once that’s done, GM will still book twice the warranty expense per vehicle that Toyota will… possibly even more, since they’ve recently gone to 5/100 (and trips/100 numbers on TrueDelta suggests that the gap on warranty expense isn’t closing). I think it’s another $500 difference.
Just a question, if invoice is the price that the dealers pay for the car… then when they sell the car for only 100 dollars more, the problem is for the dealer, not for GM…
By the way, one of the reasons I don’t like Toyota is because the dealerships are really greedy. When my friends were looking for a Tundra they were asking for a lot of money… finally they got a F150 and they are very happy with it.
Re: Spaniard
No, the transaction between dealer and the parent company is not that cut and dry. I guess there are arguments that the transaction process is too complicated for its own good (and we know complexity drives cost and inefficiency) – but it is what it is.
The invoice price that a dealer pays has inside it a holdback amount as well as dealer network / advertising per-unit cost. And, incentives are a completely separate animal that comes within a separate transaction that occurs at the time of sale to the end customer.
So, let’s pretend we have a car that has a MSRP of $35,000 and a dealer invoice of $30,000 (yes, these numbers are fake). Let’s pretend this car has the VIN # of 200905. And yes, I’m going to ignore tax and fees because tax and fees are annoying to qualify in generic examples.
If a dealer were to sell Joe Public the car for “dealer cost” $30,000 on July 1 – the dealer would:
1) Get all the holdback from Toyota once the sale clears (probably around $1,000)
2) Get all the cash-based factory to dealer incentives as well as all the cash-based factory to customer incentives.
3) Potentially, the Dealer would receive a +1 towards any “quota based” incentive that Toyota would give to the dealer for hitting its retail sales number for the month of July.
4) Potentially, by having 1 less car in inventory the Dealer might just be able to order more than its expectation of certain other profitable/hot cars.
If November 1 rolls around and the car with Vin # 200905 is still sitting on the lot – Toyota knows that they gotta help the dealer get rid of this car. A dealer with the car sitting on the lot won’t order the new model year of vehicles until they get rid of old inventory. So then Toyota needs to slap more incentives on it.
— ———————–
So the question is always asked – why doesn’t Toyota just drop the invoice price when they sell the Dealer the car and let the Dealer figure out what part of its margin to give up in order to move the metal?
I’ll let you go work for a Car Company to figure out that one. But rest assured that model does not work as well as you would think because a simple answer to a complex business model never works. Toyota needs to be in charge of the total enterprise and its sales network. And in order to be in charge, it must hold control over the incentives. Yes, the dealers are ultimately the ones that are selling, but Toyota Corporate is going to play a significant role in what it believes to be the right transaction price or monthly payment amount for customers in given sales regions.
— ———————–
So back to the point I’m making that this is not the dealer’s problem… Toyota Corporate has to estimate the sales channel in order to manage the sales channel. If they just let the dealers do whatever and figure it out after the fact – they’ll get hosed big time. They might have too many cars scheduled to be built at the plants. They may have thrown too much incentives on cars and lost out on lots of margin opportunity. Or worst of all things, they’ll be ridiculed on websites because they’ll be accused of not running their business properly.
Their business decision makers don’t get to sit around in a room and blog about what they think they should do… then go home and rant about stupid other Auto Execs. Unlike the armchair guys and talking heads on the TV – someone has to actually make a decision on what to do and live by it.
Toyota’s current strategy of investing in new product for customers represents thinking of demand out 18 to 72 months (or more).
Toyota’s expectation on managing shifts and production supply chain represents their thinking of demand out 6 to 18 months.
Toyota’s production of vehicles today indicates where they think the market demand will be in 2 to 6 months.
The incentives on the hood of the cars today represents where they think the market is for the next 30 days.
These decisions aren’t taken lightly, and they definitely are not so easy that someone could come up with the right answer by rolling out of bed one morning and turning on his computer. It’s always easy to criticize decisions, but it’s really hard to come up with the best decision.
Yes, some examples of “financial pornography” exist out there as was mentioned in a previous comment. The most difficult thing to do is to make the best decision even if that choice is not intuitively obvious. But the best companies are able to do this time and time again.
I never said they were profitably selling cars. Only that the mantra of “GM doesn’t make shit any one wants” isn’t true. It’s wanted just not at a profitable price. Price warring backed them in this corner loooong ass time ago. If the big 3 didn’t cut their prices so hard core they’d be sitting next to our TV and computer industry etc. in manufacturing heaven.
Too bad it may have only delayed inevitability. Point is, they still sell lots of cars. If they maintain current revenues and get their costs under control they will be profitable much to import lover’s chagrin.
This being said there’s still buckets of people who love their Silverados, salivating over new Camaros, in love with their Escalade etc.
3rd Place: 2009 Toyota Yaris S Liftback
As-tested price: $17,953
A good example of why Toyota is in trouble. As Bob Lutz said at Chrysler, you won’t sell many cars if you are everyones’s second choice. Toyota often is third, fourth or fifth choice.
GM cars such as the new Buicks are far more attractive than any Toyota branded cars (not including Lexus here which does have some very nice cars).
We have a lady at work who bought a near loaded Camry hybrid for $40K. The cloth and seats remind me of the interior of a fleet Taurus five years ago.
THanks for your answer HolyDonut.
Just to add some trivia.. in Spain the dealership used to register most of the unsold cars in December and then sell them as “used with 0 kilometers..” so they looked good to the factory.
I know some people who paid outrageous prices for the FJ when it was produced for the first time and now they have big discounts.