Late last week, Toyota announced that they were going to increase Tundra production. Many auto industry pundits announced that this move was nothing more than Toyota stepping back up to a “normal” level of production. At first blush, I agreed with that assessment.

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Creative Commons License photo credit: j3ku

Today, after reading a news story from the Dallas Morning News, I’m not so sure. It seems like Tundra demand is starting to climb…

Meanwhile, at Toyota of Richardson, Steve Grogean grapples with a limited supply of Tundra pickups and Sequoia SUVs. He thinks Toyota simply overreacted when sales began dropping by amounts the company had never seen before. Toyota recently announced that it’s restoring some of its truck production.

“If business picks up as it usually does in the summer, things could get pretty tight in the next 45 to 60 days,” said Grogean, vice president and general manager of the dealership.

There’s an interesting story from 2003 about Toyota’s process for managing ‘days supply’ of inventory. Specifically, it relates the days supply of the 2003 and 2004 model year Tundras to production and sales. The long and short of it: Toyota is very sensitive to ‘days supply.’

“Low days supply” is often considered anything less than 60 days of vehicle supply. The advantages in a low days supply are numerous, including:

  • Dealership financial benefits. Quick vehicle turnover reduces dealership carrying costs and leads to more dealer profits.
  • Lower sales incentives. Low days supply mean there’s less pressure to provide big incentives to consumers to sell vehicles.
  • Value perception. When a dealership salesperson shows a customer a parking lot full of vehicles, it’s very difficult to convince the customer that the vehicle is valuable and desired. When a salesperson says “here’s the three Tundras we have in stock, but we’re getting some more next week,” consumers tend to get excited. That often means more sales.

I think there’s a major sales advantage for Toyota in having a low supply of Tundras on dealer lots. First of all, you have to acknowledge that there’s not much difference between all these half-ton trucks in terms of price, quality, value, etc. Second, you have to understand that Toyota spends a lot of time talking about quality and resale value.

If a consumer goes to the Ford dealership and sees a lot full of trucks, they might conclude that Ford sells a lot of trucks (and they do). If a consumer goes to the Toyota dealership and sees that they can’t keep Tundras in stock, the consumer might conclude that Toyota quality is excellent. They are also very likely to believe that the Tundra has great resale value (it does) because it’s so popular.

To me, low inventory seems like a distinct sales advantage.

Of course, the danger with a low supply is that you risk running out of product. Toyota wants to sell as many Tundras as they can, and they really can’t risk missing sales because they don’t have enough vehicles. The million dollar question:

“How do you sell as many Tundras as possible while also keeping inventory levels low?”

It seems as if Toyota has a solution to this problem. A recent story about Toyota practicing TAKT changes at the San Antonio Tundra plant [Sidebar: TAKT changes refer to changes in the speed of the production line.], shows that Toyota is attempting to tie Tundra production speed to inventory supply as closely as possible. Toyota has changed line speed half a dozen times this year – that’s phenomenal when you compare it to the rest of the industry. It’s also exceptionally odd – what would be the benefit to practice line speed changes so frequently?

My answer: Toyota can manage Tundra inventory very closely if they can get the San Antonio truck plant used to changing line speed all the time.

Here’s the bottom line:

  1. Low Tundra inventory levels are good for business.
  2. Toyota needs to sell as many Tundras as possible to be profitable.
  3. The only way to accomplish low inventory without running out is to control vehicle production VERY carefully. That’s what Toyota is doing with the Tundra.

It’s called efficiency folks – it’s the Toyota way. It’s also very good evidence that Toyota Tundra demand is rising. Here’s to hoping Toyota’s plan works.

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