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Recalls knock Toyota from pedestal as rivals make gains

SHARE Recalls knock Toyota from pedestal as rivals make gains

DETROIT — Toyota is in trouble. The Japanese automaker is playing defense as sales slump, dealer inventories swell — even for the Camry and Prius — and consumers demand larger discounts to remain loyal to the brand once viewed as unstoppable.

More than 11 million recalls worldwide over the past year are taking their toll on Toyota. And they aren't over. Last week, Toyota recalled 650,000 Priuses to fix cooling pumps. Toyota dealers also are fixing weld nuts on accelerator pedals of previously recalled Camrys and Avalons.

Now, Toyota's U.S. sales are suffering — even though it remains the most popular retail brand at the moment. While industry sales rose 17 percent last month, Toyota sales fell 3.3 percent.

Toyota's decline comes despite a large increase in cash-back rebates and other deals. In November, Toyota spent an average of $2,602 per car on incentives, 37 percent more than a year ago, Autodata estimates. But its car sales still fell 18 percent.

Toyota acknowledges its challenges. In addition to quality woes, it must overcome a reputation for bland styling.

"We noticed a sharp decline in our ability to attract new owners throughout this year," Bob Carter, head of the Toyota division, said last week.

Toyota spokesman Mike Michels also noted last week that "a couple of our core products," such as the Camry, Corolla and RAV4, are "at the middle or end" of their life and will be updated soon.

Meanwhile, rivals — especially Ford, Honda and Hyundai — are snapping up Toyota drivers.

Southfield, Mich., Toyota dealer Bob Page is wistful about the days when Camrys, Corollas and Priuses would practically sell themselves, but he knows they're probably gone forever.

Today he assumes everyone coming into his showroom is considering at least one competing vehicle. Oftentimes, that's a Honda or a Ford.

"A lot of it is because they weren't part of the government bailout," Page said. "I hear a lot of comments about that."

Toyota retail sales — dealers to consumers that exclude fleet bulk sales to businesses and government — still lead the U.S. industry, but the air of invincibility is gone.

Rebates, discounted leases and free maintenance have retained many of Toyota's loyal customers. But the improved offerings from domestic, Asian and European automakers have raised the competitive bar to a level that Toyota hasn't seen.

"There's no question that people are looking for highly styled vehicles, and Toyota is probably a little behind the curve on that," said Ed Tonkin, a multi-franchise dealer who owns a Toyota showroom in Portland, Ore. "The Hyundai Sonata has been a real in-your-face example of how the competition is better."

While Toyota's troubles can be traced to a variety of sources — recalls, design, market trends — many stem simply from its aging product line, Mike Michels, Toyota spokesman, told the Detroit Free Press recently.

An all-new Camry will be introduced next summer. Prius, which Toyota is launching as its own brand, will introduce a new plug-in hybrid and an all-new gas-electric car.

"Fresh product always gives you a chance to spur the momentum," Michels said.

But some dealers say Toyota's troubles are broader than that.

"Ford's product line is starting to kill Toyota. Their product is old," one dealer who didn't want to be named told the Free Press. "People are only buying Toyota if they get a deal now, because there's a perception it's not the thing to buy anymore. The truth of the matter is that they've got themselves in a pickle."

Fighting off image problems following its massive recalls are among the biggest challenges Toyota faces.

Toyota's Carter said that although the automaker struggled to attract new customers in the first half of the year, 57 percent of sales are coming from customers who are trading in a rival model.

That doesn't measure people who would have purchased a Toyota but are now looking at other choices.

YouGov BrandIndex conducts a daily survey of consumers planning to buy a car in the next six months. It asks whether what they've heard about every brand in the past two weeks is positive or negative. They call this a "buzz score."

Toyota's buzz score finally surged into positive territory in June as the recall news media coverage subsided. But it turned negative again in July and August. It has recovered since early September but remains less positive than the corresponding buzz score of other Asian and European car brands.

Another challenge for Toyota, though, is a market shift. Americans are moving back to pickups, SUVs and crossovers as gas prices have moderated near or below $3 a gallon. Toyota has always been stronger in passenger cars.

In the past, Toyota was noted for producing only slightly more of any model than it knew it could sell. Inventories of its models, as measured in days' supply, were often half the size of competitors.

Small inventories reduce dealers' costs and minimize the need for expensive incentives.

But at the end of October, stocks of the Prius hybrid approached 90 days' supply. Camry, America's best-selling car since 2002, stood at 75 days' supply. Camry sales tumbled 24 percent last month.

This reflects "both the lingering effects of the recalls and a market that slowed a lot more in the summer and early fall than anyone expected," said Rebecca Lindland, an industry analyst with IHS Automotive in Lexington, Mass.

That leaves two options: Boost incentives even more or reduce production at assembly plants. A year from now, Toyota plans to begin production at a plant near Tupelo, Miss., that has sat empty since 2008. That plan assumes industry sales continue to rebound.

For now, Toyota has been choosing incentives. For the year, Toyota incentives are up 29.9 percent for the year, to $2,019 per vehicle on average, according to estimates from Autodata. Automakers don't provide incentive numbers publicly.

Such tactics can help win sales races, but they don't help profit margins.

Throughout its recall crisis, Toyota has continued to be profitable. Earnings for the quarter ended Sept. 30 quadrupled to more than $1.2 billion, and about $447 million of that came from North America.

But there are changes in where Toyota is making its money. North America is no longer Toyota's most profitable region. That distinction belongs to Asia, not including Japan.

It could take Toyota years to regain its former dominance.