Will Japan Shake Detroit's Light Truck Stronghold?
Cheryl LaBash is the kind of customer who makes Detroit execs lose sleep at night. She happily drove Japanese cars for 17 years until 1997, when she traded in her Honda Civic for a Plymouth Voyager. The 49-year-old Detroit construction inspector needed a roomier vehicle to haul her 100-pound Alaskan malamute and her work equipment. Honda Motor Co.'s CR-V sport utility was too small, so she paid $16,000 for one of Chrysler Corp.'s popular minivans. But with Honda introducing a larger minivan, LaBash admits she still has a soft spot for Honda and could be won over again. "The Japanese vehicles have more amenities, and they are just more comfortable to drive," she says.
Watch out, Detroit. Here come the Japanese--again. The last bastion of Detroit dominance, light trucks, is under attack. A wave of new minivans, sport-utility vehicles, and pickup trucks from Japanese auto makers is about to encroach on Detroit's profit paradise. These new Japanese contenders pose an even greater threat than hot models such as the CR-V and Lexus RX 300 sport utes, which only nibbled at the edges of Detroit's truck stronghold. "They're going to give Detroit trouble," predicts Lehman Brothers Inc. auto analyst Joseph S. Phillippi. "Down the road, they will take a lot of share."
The onslaught will begin in October, when Honda launches the $23,000 Odyssey minivan, aimed squarely at the top-selling Dodge Caravan and its sibling, the Voyager. Next spring, Toyota Motor Corp. will begin selling the Tundra, the first Japanese full-size pickup to spar with Detroit's sales stalwarts, the Ford F-series, Chevrolet Silverado, and Dodge Ram. And in 2000, Honda and Toyota will both launch roomy sport utilities that analysts say could give Detroit a run for the real money.
FAT MARGINS. In this contest, Detroit has a lot to lose: It derives virtually all of its automotive profits from sport utilities, minivans, and pickups. Margins on chrome-laden SUVs can run to $15,000. Phillippi figures Ford Motor Co. pocketed nearly $2 billion in profits last year just from the Ford Expedition and Lincoln Navigator sport utilities.
Detroit auto chieftains promise to protect their commanding 85% share of the lucrative truck market. And they do not fail to note that Toyota and Honda have flopped before with minivans and pickups that were too cramped and lacked power. To name one example, the too-small Toyota T-100 in 1993. "I don't think those people understand the truck market," says Chrysler Chairman Robert J. Eaton. "They haven't come close yet."
But the Japanese, who have steadily captured nearly one-third of the U.S. car market over the past two decades, are now confident they can make a run at trucks. The new Toyota pickup will feature a brawny 4.7-liter V8 engine. And Honda's Odyssey equals the Caravan in size, offers a more powerful V6 engine, and has a third row of seats that tucks neatly into the floor to expand cargo room. "Everybody knows how good the Caravan is, but Honda's image is pretty good, too," says Thomas Elliott, American Honda Motor Co.'s executive vice-president for sales.
Honda and Toyota will start small. Honda plans to sell only 70,000 Odyssey minivans next year--a pittance compared with Chrysler's 500,000 annual minivan sales. And Toyota is planning only 100,000 Tundra sales in the first year--just 14% of the annual sales of Ford's F-series pickup.
But that deliberate approach is deceptive. Toyota has invested $1.2 billion in a new plant near Evansville, Ind., to build the Tundra, and in 2000, a big sport utility. And Honda invested $200 million to build a new factory in Alliston, Ontario, next to its existing Civic plant, to produce the Odyssey and a sport ute known as the MAV, also coming in 2000. Combined, those two plants could be pumping out a half-million minivans, pickups, and sport utilities within three years.
Honda and Toyota have already scored small but significant victories in sport utilities. They created a new market for car-based sport utes over the past two years with the hot-selling Honda CR-V and Toyota RAV4, which combined are on pace to sell more than 150,000 units this year. And the best-selling model for the past four months in Toyota's Lexus luxury line is the new RX 300 SUV, now selling at an annual rate exceeding 50,000. "People are trading in Jeeps and getting on the waiting list for the Lexus," says East Hanover (N.J.) car dealer Peter Jarvis.
Detroit dismisses Japan's SUVs as "niche vehicles," but it is firing back with new models of its own. Chrysler is launching an overhauled Jeep Grand Cherokee, but instead of jacking up the price, it actually cut it by $250 to start at $26,220. General Motors Corp.'s most important new model is the $15,995 Chevrolet Silverado, packed with new features but just $340 more than the 11-year-old model it replaces. And Ford is adding a fourth door to its Windstar minivan and the extended-cab F-150 pickup. "We intend to keep ahead of the game," pledges Richard Parry-Jones, Ford's group vice-president for product development.
But Detroit has fallen behind before. That's why America's two top-selling cars are the Honda Accord and Toyota Camry. "Once the reputation gets out on the Tundra," says Don Esmond, group vice-president for the U.S. Toyota Div., "it will be just like the Camry." That might seem a distant prospect to confident Motown execs. But if it comes to pass, it would be their worst nightmare.