Toyota: The Lion Awakens
It's a dramatic change. On Oct. 23, under a swirl of spotlights and with thumping disco music in the background, Toyota Motor Corp. unveiled a new minivan to the Japanese market. Christened the Noah, it's a major remake of an older, no-nonsense van once favored by Japanese electricians, carpenters, and plumbers. The new Noah is designed to carry busy, affluent families on weekend trips and vacations. The front doorstep has been lowered so owners no longer hike up like truck drivers to the front seat. And to improve the vehicle's looks, the engine has been pushed out in front, giving the car a nose. In a bit of whimsy, Toyota ads feature a cartoon family of tapirs, long-nosed pig-like animals.
Noah's mascots may be cute and funny, but they are also part of a deadly serious effort by Toyota. The giant carmaker is facing a double humiliation at home. First, there's a real chance that in 1996, Toyota's market share in Japan will drop below 40% for the first time in 15 years. Just as embarrassing, the one carmaker most responsible for this setback is Honda Motor Corp., a company one-third Toyota's size. Honda has only 13% of the market in Japan, but its sales there have grown 20% this year. While Toyota has misjudged the changes in consumer preferences at home, Honda has been scoring big with minivans and other vehicles the Japanese are snapping up.
Toyota is finally responding to the Honda threat with a whole fleet of new launches and makeovers involving 10 different models (table). The drop in market share has Toyota executives obsessing about the fate of General Motors Corp. in the U.S. GM now holds less than 32% of its home market, but in the 1970s it owned almost half. That's the kind of shrinkage Toyota vows to avoid at any cost. Says Kanji Kurioka, executive vice-president for the domestic market: "Once market share starts to drop, it keeps on dropping, so we want to be stubborn about this 40%."
Toyota is nowhere near the critical condition that GM slipped into years ago. The Japanese giant has $23 billion in cash, and it is flush with new windfall profits from the decline of the yen. But Toyota's managers know they miscalculated in Japan, and they don't want to repeat their mistakes. What's more, if this flurry of launches produces some serious hits, Toyota can export the winners to overseas markets or make them in offshore plants. Its RAV4 sport utility, for example, was launched in 1994 and reached the U.S. this year.
"CARPET BOMBING." First, though, Toyota has to grab back some of the share that Honda stole. Around 1991, Japan's middle-class families began to turn more to minivans, station wagons, and sport utilities, all called "recreational vehicles," or RVs, in Japan. In the past two years, Honda has launched one hit product after another for this new market. Its best-sellers include the Odyssey minivan and CR-V, a small sport utility built to rival the RAV4. These moves give Honda a solid hold in a segment that now makes up 30% of passenger-car sales in Japan.
Toyota, on the other hand, is playing catch-up. "We didn't read the market changes," admits Kurioka. "We put too much emphasis on sedans." And Honda isn't the only thorn in Toyota's side. Mitsubishi Motor Corp. and Nissan Motor Co. also brought hot-selling sport utilities and vans to the market. Even U.S. and European imports have nibbled away at Toyota and won 5% of the market.
Toyota has mounted a powerful counterattack. In May, it revealed its answer to the Odyssey: a $17,000 small minivan called the Ipsum that the company rushed out in a record 18 months. Staying one step ahead in the minivan category, Honda launched its $16,000 Step WGN, which is larger than the Odyssey and the Ipsum. But this year, Toyota is slightly ahead in this category, selling 55,524 Ipsums to Honda's 41,248 Step WGNs through September. Toyota is banking on the Noah to add to the Ipsum's success.
Despite the flurry of RV launches, neither company is abandoning the rest of the market. Honda has broadened its lineup with the brand-new midsize Integra sedan and the Logo subcompact. Six of Toyota's new cars this year were sedans, mostly remodelings rather than entirely new vehicles. The Corona compact got a new look and a new name: Premio. The comfortable Mark II sedan has sold 66,336 through September. Factory workers are earning overtime to keep up with demand for the $30,000 remodeled Windom, which is the Lexus ES300 in the U.S. Launched in August, the new Windom is 104 pounds lighter and comes with such bells and whistles as a voice navigation system.
Toyota is also spending big on promotions and marketing. To secure a 40% market share for the year, Toyota will have to get at least a 45% share in the final three months, a feat it has rarely achieved. But the company sure is trying. Already, competitors and analysts are calling Toyota's advertising blitz a "carpet-bombing campaign." On television, hardly a commercial break goes by without a Toyota pitch. In September, the company spent more than $1 million a day marketing its cars. Kurioka says the company is willing to spend as much as $1 billion to $2 billion a year in advertising and incentives to consumers and dealers.
WISE TACTICS? Toyota is going to further extremes to keep the home fires burning. The company has even slowed shipments of the new Lexus ES300 to the U.S. to keep Japanese dealers stocked with the Windom. That will leave Toyota dealers in the U.S. just 12 days' supply of the new Lexus model, a week less than average for Toyota. "We're struggling to keep up with demand, but for now it's more important to get sales in our domestic market," says Kazushi Iwatsuki, a Toyota director who oversees domestic marketing.
Some observers wonder how wise Toyota's tactics are. "It's just macho bulls--t," says one analyst, noting that GM's profits have improved since it got over its obsession with market share.
Toyota execs don't see it that way and probably never will. "We're not giving 100% yet," says Toyota President Hiroshi Okuda. "Our efforts will accelerate." Toyota is a giant with vast resources, but it also has a lot to lose if it keeps misjudging the market. It won't easily suffer the defeat of a permanent loss of market share. Watch for Toyota's attack on its domestic rivals to continue unabated.