Toyota is acting strange lately.

  • During the 90’s, Toyota led the charge in hybrid technology despite the fact they made little or no profit on every hybrid they sold.
  • Last week, Toyota announced that they will not significantly invest in all-electric vehicles, nor will they choose to use Lithium-ion battery packs in upcoming vehicles.

15 years ago, Toyota rolled the dice on hybrids with no regards to costs.  Today, Toyota rejects the latest battery technology to save money, and they don’t seem particularly concerned about leading the way on all-electric cars (despite their promise). Puzzled? Keep going.

Toyota's recent moves smack of confusion and poor management.

Toyota's recent moves smack of confusion and poor management.

In March of this year, Toyota reported the largest financial loss in the history of the company and immediately jumped into cost-cutting mode. They canceled executive bonuses, scaled back investments, and decided to close NUMMI, their largest auto plant in California, in order to cut costs.

All of these changes were supposed to usher in a new way of doing things – a “back to basics” approach. Old Toyota CEO Katsuaki Watanabe was fired in June to make way for new Toyota CEO Akio Toyoda, grandson of the founder of Toyota. Akio promised an emphasis on profits, building small cars, and he rejected the goal of becoming the largest car company in the world.

Yet we wondered aloud why Toyota seemed to be throwing away momentum by focusing on small cars. After all, Toyota’s financial problems weren’t because of a decision to “step away” from small cars (as some at Toyota seemed to believe) – the issues were a credit collapse and Toyota’s dependence on production in Japan. Toyota’s profit margins were dependent upon a strong dollar, a myopic business practice to say the least. Toyota leadership often seemed to be contradicting previous moves for the sake of contradiction itself.

Last week, Toyota made yet another puzzling move: At a dealer meeting, Toyota announced plans to spend $1 billion on marketing during the 4th quarter, which is 30-40% higher than normal. While Toyota’s dealers were certainly excited, this move seems wrong-headed for two reasons:

  1. Toyota dealer inventories are low. Cash for Clunkers drove demand wild in August, and many Toyota dealers are running low on inventory (many are completely out of Corolla and Yaris, and Camry and Highlander inventory is as low as it’s ever been). It will take 30-60 days for dealer inventories to return to “normal” levels…which means that some Toyota dealers will begin the 4th quarter marketing blitz with low inventory.
  2. Cash for clunkers undoubtedly “pulled forward” some demand. While there are signs that the economy is recovering, there’s no denying that the hysteria surrounding Cash For Clunkers pulled some sales forward (people that were planning on buying September or October likely bought in August). The most realistic expectation for the auto industry is that the rest of 2009 is going to be a lot like the first 7.5 months – slow.

If all of the above isn’t enough to convince you Toyota management is lost, consider this:

Toyota is going to “push” lease residuals to boost sales – why didn’t they do this earlier? At the aforementioned dealer meeting, Toyota said they’re going to use marketing funds to increase lease cash and inflate residuals. These moves will allow Toyota dealers to advertise ridiculously low payments (think $199/month 2010 Camry).  The best part? The cost of this program won’t be realized for 2 or 3 years…which is when the auto market is expected to be hot again.

Where was Toyota on this move 6 months ago?

What better way to push sales during a downturn than to provide cheap new cars? Toyota could have enjoyed strong sales for most of the year (rather than just the last month) by advertising cheap payments. Instead of kick-starting sales, the Cash for Clunkers program could have been a strong end to a great summer.

Too bad all the executives were busy cutting costs 6 months ago instead of thinking about how to boost sales.

Of course, it’s possible that this move was planned all along. Perhaps Toyota knew that Cash for Clunkers would be a wild success (in terms of sales volumes). Perhaps they knew that Obama and Congress would triple funding for C.A.R.S. Perhaps they knew that, despite the wild sales volumes in August, the car market would continue to grow into the 4th quarter.

Or perhaps Toyota is being managed in a helter-skelter “let’s-do-this-no-wait-let’s-do-that” sort of manner…which is completely uncharacteristic of them. And puzzling.

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