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Toyota sputters as market shifts

From the Detroit Insider:

Wednesday, July 9, 2008
Toyota sputters as market shifts
Like Big 3, automaker has too many trucks, too few cars

Christine Tierney / The Detroit News

When U.S. auto sales slumped last month to their lowest levels in more than
a decade, Toyota Motor Corp. suffered as much as anyone else.
Unusual for the Japanese automaker, its U.S. sales tumbled 21.4 percent, even more than the overall market.

As the manufacturer of the Corolla, Yaris and other popular small cars and the leading seller of hybrids, Toyota should have benefited from soaring fuel prices. Instead, its U.S. dealers found themselves stocked with Toyota and Lexus trucks they couldn't sell, and short of small, fuel-efficient cars.

At a meeting last month in Salt Lake City, dealers pressed Toyota's top U.S. managers to explain why the carmaker renowned for its responsiveness and flexibility couldn't provide them with more small cars.

"They're maxed out in production of Corolla and Camry cars in North America, and there's nothing more the U.S. staff can do," said Rosario Criscuolo, a Michigan dealer with showrooms in Lansing and Ann Arbor who attended the meeting.

The dramatic shifts in the U.S. auto market this year surprised Toyota, along with everyone else. "I don't think the management we have now at Toyota has ever seen anything of this sort."

In the past 50 years, Toyota steadily expanded its presence in the United States, advancing through strong and weak markets to become the No. 2 player this year behind General Motors Corp.

But the once-unstoppable Japanese juggernaut is now grappling with problems more commonly associated with Detroit's ailing Big Three -- large inventories of unsold trucks and under-used factories.

"Toyota is no longer considered immune from the market forces at work in the United States," said Aaron Bragman, an auto analyst at Global Insight.

750 temporary workers out
Toyota already had warned investors in May that its annual profits would fall for the first time in seven years because of weakening demand in the United States, where analysts estimate it generates half its earnings. Toyota is taking tough measures at its U.S. operations, shedding around 750 temporary workers at its truck and engine factories.

Toyota's difficulties reflect a combination of factors: the ill-timed launch early last year of its Tundra full-size pickup, and a decision to take more time to develop new vehicles to nip quality problems that were starting to hurt the automaker's reputation. That led to delays in the rollout of a redesigned Prius hybrid and other models that dealers had expected to see this year.
"You're looking at a company at a difficult time and place in its history," said Maryann Keller, an auto analyst who heads her own consulting firm, Maryann Keller & Associates in Stamford, Conn.

Toyota's U.S. sales are down 6.8 percent this year, including a 14.7 percent decline in its highly profitable Lexus luxury vehicles.
Sales of the Tundra pickup plunged 53 percent in June. According to estimates from J.P. Morgan's Tokyo-based analyst Takaki Nakanishi, Toyota has truck inventories equivalent to 99 days' supply, well above ideal levels.
Still, Toyota holds a critical advantage over its U.S. rivals GM, Ford Motor Co. and Chrysler LLC -- "cash in the bank and lots of it," Keller said. The company has about $40 billion in cash reserves.

"Toyota has a chance to rethink its global product strategy, invest in new technologies, come up with small cars that are fun to drive," she said. "They're the only ones who have the money to make this transition fairly rapidly."

This year, just about every automaker was caught off guard by the severity of the downturn and the swift plunge in light truck sales. They account for 44 percent of the market now, down from 55 percent six months ago.
In this environment, Honda Motor Co. has fared well because its smaller lineup is skewed toward small, fuel-efficient vehicles. By contrast, Toyota competes in every vehicle segment and some of its large models are struggling.

Toyota officials said this month that it will add a four-door Yaris to its lineup, and the company is on track to launch a car-based crossover, the Venza, later this year.

Among dealers and analysts, there is talk that Toyota may announce plans to assemble gas-electric hybrids in the United States, retool one of its truck-assembly lines, or even establish a new, all-hybrid nameplate to emphasize its green credentials.

"Everything is currently under study," Jim Lentz, president of Toyota Motor Sales USA, told reporters last week. "We have to study where this market is headed, not just in 2008 but 2009 and 2010 and beyond."

Plant output revamped
Toyota has already adjusted production in the United States to turn out fewer large trucks and SUVs and produce more cars. "The plants they have can do it in as short a time as anybody," said Ron Harbour, director of consulting firm Oliver Wyman's automotive manufacturing practice.
Japanese automakers tend to design assembly plants with the flexibility to produce a variety of vehicles. But that flexibility has limits -- Toyota cannot easily produce small cars at the San Antonio plant where it makes Tundras.
"It's not so easy to retro-fit, or build small vehicles on the same line," said Mike Goss, spokesman for Toyota's North American manufacturing operations.
Toyota has slowed the pace of production at its truck plants twice since the fall and last month announced a third slowdown in production starting in August and will also halt production for several days.

While the automaker does not plan to shutter factories or lay off permanent employees as Detroit's automakers have been forced to do, it has cut around 460 temporary workers at its Princeton, Ind., plant; 80 at an Alabama engine plant; and will shed about 200 temporary workers in Texas.
"We haven't had too many experiences like this," Goss said. "Nothing of this magnitude in North America."

Toyota makes use of temporary workers -- who accounted for about 10 percent of the work force at its truck plants -- during busy stretches and sheds them when production slows. Toward its permanent employees, Toyota's longstanding policy is to increase training and plant-improvement projects during lulls. The objective is to come out of the downturn stronger.
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