In the first big test of its push for sharper styling, Toyota Motor Corp. (7203) revealed a redesign of its top-selling Corolla with knife-edge creases, a gaping, trapezoidal grille and a sports sedan slant.
The new look is aimed at adding a dash of style to the compact car, without dramatic changes that could alienate mainstream customers. The new Corolla takes its cues from Honda Motor Co.’s Civic, which outsold Corolla in the U.S. last year, and Ford Motor Co. (F)’s Focus, which is swiping market share from Toyota in the U.S. and abroad.
While Toyota President Akio Toyoda is pushing his designers to move away from the staid styling derided by critics, the new Corolla is a modest step in that direction. The car is carefully calibrated to appeal to loyalists and the style-conscious by offering improved fuel economy and a less-edgy design than the Furia concept car Toyota showed in January.
“It does look more attractive,” Jessica Caldwell, an analyst with Edmunds.com, said after seeing the new Corolla. “It’s not a bad thing if it’s just a different flavor of vanilla. Plenty of people like something a little more basic.”
The compact-car business has changed considerably since the Corolla’s last redesign five years ago. Back then, sensible sold, which helps explain how Toyota’s durable small car has amassed more than 40 million sales over the last 47 years. Now, though, it takes a dash of style, a lesson Honda painfully learned when it had to go back to the drawing board last year and redesign its Civic after it was savaged by critics for being too tame when it was introduced in 2011.
Since the last Corolla came out, competitors have “really gotten up their game, most notably Hyundai and Ford,” said Matt Stover, an analyst with Guggenheim Securities in Boston, who rates Toyota a buy. “Some of those have done particularly well in the upper price part of that segment.”
The new Corolla, unveiled amid lavish festivities at an airport hangar in Santa Monica, California, late yesterday, has to take on some of the best sedans a resurgent Detroit has produced in a generation. Ford Focus sales rose 40 percent last year to 245,922 cars, while GM’s Chevrolet Cruze compact sold 237,758 cars last year and is up 6.2 percent this year.
“With the improved styling, with the more premium interior and improved performance, I think we’re going to be able to build on all the things we’ve established in the market,” Bill Fay, Toyota’s group vice president for U.S. sales, said in an interview in Santa Monica. “Our marketing work says we should appeal to a little bit younger buyer.”
Production of the U.S. model is to start in August at Toyota’s plants in Ontario and Mississippi, with sales likely to begin September, Fay said.
Toyota’s American depositary receipts rose 2.3 percent to $117.06 at the close in New York. The receipts increased 26 percent this year, compared with a 15 percent gain for the Standard & Poor’s 500 Index.
The older version of the Corolla has managed to wrest leadership back in U.S. compact car sales this year from the Civic. Corolla sales are up 5.9 percent to 132,514 through May. To win over those buyers, Toyota had to offer a discount of $2,072 per car this year, the second-highest among compacts, according to researcher ALG. Focus was highest at $2,156.
Toyota, based in Toyota City, Japan, also sells 23 percent of Corollas to fleet buyers, such as car-rental companies, who typically pay less than individual consumers, according to Edmunds, which is based in Santa Monica. That is double the fleet sales Corolla did five years ago, Edmunds said.
Sales matter in the booming compact-car business, where volume has to make up for small profit margins. Discounts and bulk fleet sales eat away at profits. Through May, total compact car sales in the U.S. grew 8.8 percent from a year ago to 831,345, ranking the segment ahead of the surging market for full-size pickups, according to researcher Autodata Corp.
“The existing Corolla is clearly dated compared to its competitors,” said Alec Gutierrez, senior market analyst for auto researcher Kelley Blue Book in Irvine, California. “The much-anticipated redesign of the Toyota Corolla should address the shortcomings of the previous version.”
It’s hard to overstate the importance of the Corolla to Toyota, the world’s largest automaker. Global sales of the Corolla will probably increase 7 percent this year to 1.3 million cars, according to Takeshi Miyano, an analyst with researcher Carnorama Japan in Tokyo. That’s down from a peak of 1.42 million in 2006, as the Civic, Focus and Hyundai Elantra have won customers with fuel economy and lower prices.
The new Corolla fights back in the mileage wars. Toyota said one version will get more than 40 miles (64 kilometers) per gallon in highway driving. That’s an improvement from the current Corolla, which tops out at 34 mpg on the highway.
That’s important to budget-minded, U.S. small-car buyers, said Alexander Edwards, president of San Diego-based industry consultant Strategic Vision.
“It’s the perceived economics of the vehicle -- how reliable do I believe it’s going to be over the next three to five years?” he said. “Toyota and Honda still have an advantage in that area.”
That reputation for bullet-proof quality has been central to Corolla’s success. Some 59 percent of Corolla owners replace their car with another Toyota, Edwards said, citing Strategic Vision data. That’s a higher loyalty rate than the 45 percent of Civic owners who opt for another Honda product, he said.
Where the Corolla has fallen short is winning over new buyers from rival models, Edwards said. About 39 percent of Corolla buyers come from a previous Toyota model. If Toyota depends too much on repeat business from Corolla loyalists, the car will wither from lack of younger buyers.
“It is something that needs to be corrected,” Edwards said. “If a lack of conquests persists over time, the brand can begin to suffer.”
This is where the new more “assertive” and “athletic” styling comes in, Toyota said. The 2014 Corolla is longer, wider and lower than the car it replaces. It comes with sleek LED headlights that narrow as they flow into the fenders, giving the car the appearance of scowling. The large, trapezoid-shaped grille echoes a similar style found on Ford’s Focus.
The interior has a cleaner, contemporary look with a horizontally angled dash intended to feel more spacious, the company said. The car also gets “ornamental” stitching and pinstriped interior accents to make the economy compact seem more premium, Toyota said.
The current car’s four-speed automatic gearbox is replaced with a continuously variable transmission to curb fuel consumption. The new car comes in four grades -- L, LE, sport-oriented S and LE Eco. Toyota didn’t release prices. The current Corolla sedan starts at $16,230, according to Edmunds.
The car’s new look and more sporty handling are in direct response to demands from Toyoda, the company president and grandson of the company founder. The Corolla holds a special place for him and his family.
The car’s history stretches back almost five decades, when Eiji Toyoda, Akio’s great uncle, first swept the U.S. with a vehicle that helped the company ascend to the top of the automotive industry.
Since the first one rolled out in 1966, Toyota has used figures ranging from Homer Simpson to Brad Pitt to market the car to the masses. The first car Akio Toyoda bought was a used fourth-generation Corolla 1600GT.
“The car taught me the joy of driving,” he said last year at an event in Ohira, Japan. “It was like a good friend.”
Now Toyoda is hoping the update to his old friend will help the company shake its reputation for building bland cars.
“As other manufacturers approach Toyota’s high level of quality and reliability, Toyota execs obviously realize that styling and design are going to be more and more important,” said Jack Nerad, Kelley Blue Book’s executive editorial director. The new Corolla “is a clear indication that Toyota is putting additional emphasis on interior and exterior design.”
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