The New Camry: A Speedster in a Stalling Market?

Uh oh, Detroit. Toyota is ready to launch a snazzier, swifter 2002 model -- and it costs less than its top-selling predecessor

"New and improved" has been the mantra of manufacturers for decades. But when it comes to Toyota's Camry sedan, the Japanese carmaker really has improved just about everything in its bread-and-butter model for next year. When the all-new 2002 Camry hits dealerships in the coming weeks, it will have more legroom and headroom. It's more stylish then its bland predecessor, and it even scoots from a standstill to 60 miles per hour faster than before. Oh, and it's hundreds -- in some cases thousands -- of dollars cheaper.

That's an ominous sign for Detroit for several reasons. First, it shows that North America is so competitive that no one -- not even Toyota, whose sales are up 6% this year in a U.S. market that's down 5% -- can get price increases for a new vehicle. Worse, it demonstrates that Toyota can wring enough costs from its product-development and manufacturing system and use favorable exchange rates to cut prices. "The company that has a huge box of money next to the chairman's desk can now make cars cheaper," says James Hall, vice-president of AutoPacific Inc. in Southfield, Mich.


  "Do you see this as a problem for Detroit?" asks Hall, tongue-in-cheek. Well, yes, it will be in the passenger-car business. Camry is already a best-seller in the midsize segment -- comprising some 3 million vehicles, or 18%, of the U.S. vehicle market. Toyota sells about 400,000 Camrys a year, making it the most popular car in America for the past four years. This year, it's nip and tuck with Honda's Accord for the passenger-car sales crown. And Camry has always commanded a premium price vs. its competitors.

Even with such an impressive history, Toyota is still cutting prices -- which range from $19,000 to $26,000 -- by $600 to $1,800, depending on the option package. Says Toyota Division Group Vice-President Donald V. Esmond: "We need to price to the market."

And the market is slowing. Sales of all vehicles were down 5% through July. Passenger cars were hit worse, falling 6.5% this year. Even rebates of $2,000 or more per vehicle industrywide can't keep sales up. Says Nextrend analyst Christopher Cedergren: "It's a deflationary period in the auto industry."


  Even so, Toyota may be best positioned to keep its sales and profits up in a tough market. In developing the new Camry, the Japanese powerhouse cut development costs by 30%, says AutoPacific's Hall. And it cut costs without cutting corners -- it offers more powerful engines and a sportier-driving 2002 model. Esmond says the car will still sell at a premium and will crank out profits. "This is really scary if you're Detroit," Cedergren says. "Chevrolet and Ford will be hit."

This isn't the first time Toyota cut prices. When the auto maker launched the last all-new Camry in 1996, it cut costs and slashed prices by as much as $1,300 per vehicle, notes Cedergren. The result: Sales jumped 11% the next year, and the model overtook Ford's Taurus that year as the best-selling midsize car.

Detroit is doing everything it can to keep its cars moving off dealer lots. All of the Big Three have incentives that average more than $2,100 per vehicle. Toyota and Honda, on the other hand, have pretty much kept their incentive levels below $800 per car. Toyota just started laying out incentives averaging $1,400 to move 2001 Camrys to make room for the new model. Honda plans to hold its turf with an all-new Accord next year.

From all appearances, Detroit's auto makers will have a tough time competing with the new Camry. Says Hall: "It should be a smash hit." If Toyota can pull that off even in a down market, its American competitors may have to sit up and take notice.

By David Welch in Detroit

Edited by Douglas Harbrecht

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