Toyota’s Distributors – Do They Cost You?

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In doing some research on the passing of Carroll Shelby, an interesting side note came about. Shelby was approached to be the first Toyota distributor in the U.S. The question that came up is why did Toyota need distributors and how does this affect your truck price today?

Toyota’s Distributors - Do They Cost You?

Do local Toyota distributors cause more harm than good by causing consumers to spend more for features they don't need?

In the 1960s Toyota was working hard to get its product into the U.S. However, without an established line of importers, car dealers and storage facilities, it was becoming very difficult. So, they decided to contract with distributors who already had some of the infrastructure needed. Shelby was one of those individuals. He regretfully turned them down.

Shelby explains in an Autonews.com story:

Instead Shelby, now 84, turned his good racer buddy, Tom Friedkin, on to the deal. And it was Friedkin who in 1969 acquired Gulf States Toyota Inc., an independent distributor that has annual revenue of more than $4 billion and is getting stronger each year.

Says Shelby: “I turned it down because I went to Lee Iacocca, and he told me not to take it because the domestic makers were going to push the Japanese back into the ocean. But I’m happy for my friend. At least a friend made the money.”

As the story goes Toyota eventually handled some of the distribution itself, especially on the West coast, but used five other distributors to handle the rest of the country. A side note that in 1966, the first year of U.S. distribution, Toyota sold only 20,908 vehicles, in 2009 it sold 2.09 million. Eventually though, Toyota decided it would be better not to use distributors and has bought back or canceled all of them except Gulf States Toyota and Southeast Toyota.

Toyota’s Distributors
Southeast Toyota is the world’s largest distributor and works in the five states of Florida, Georgia, Alabama, North Carolina and South Carolina that account for 20% of Toyota sales in the United States. Gulf States Toyota is the world’s second largest distributor of Toyota vehicles and works in five states: Arkansas, Louisiana, Mississippi, Oklahoma and Texas which account for 13 percent of U.S. Toyota sales. Toyota Motor Sales U.S.A., Inc., headquartered in Torrance, California, is the corporate distributor and handles all the rest of the distribution in the U.S.

Distributor Pros and Cons
If there are positives to the Gulf States and Southeast Toyota distribution deals, it’s that:

  1. Many dealers seem to appreciate the distributors for being more dealer oriented. One store manager states that Toyota’s dealership services don’t compare to the services offered by Gulf States. Gulf States has in-store training, better sales and support staff, and a better approach than Toyota USA.
  2. Over the last 40+ years, both distributors have helped Toyota USA become a better sales organization. Many staples of Toyota’s current marketing (Toyotathon, Toyota extended service plans) were developed with help from the distributors.

The problem is that both of these distribution companies are able to exercise a surprising amount of control over the Toyota’s they sell. As distributors, Gulf States Toyota and Southeast Toyota are allowed to:

  • change vehicle pricing and adjust sales incentives
  • “load up” new Toyota’s with accessories that the distributors install themselves, thus denying Toyota a small amount of profit while simultaneously forcing consumers in their region to buy accessories they might not otherwise want
  • increase the cost of replacement parts, change sales and service processes, etc.

Essentially, Gulf States Toyota and Southeast Toyota are the very definition of “middle men.” They don’t manufacture the vehicles, nor do they sell them (franchised dealers still hold that responsibility). These distributors just add on equipment, monkey with pricing and incentives, and then sit back and collect their checks.

According to those in the know, Toyota has tried numerous times to buyout the Gulf States and Southeast distribution deals, using every possible combination of carrot and stick to convince these distributors to leave. At every turn, the distributors have resisted. Because the legal agreements between Toyota and these distributors is essentially air tight (Toyota can’t pull the deals unless these distributors royally screw up their customer service scores or sales figures), Toyota has no recourse – they’re stuck.

Still, it’s not as if Toyota couldn’t have developed the sales and marketing skills needed to compete with Ford ,GM, etc. in the USA. These distribution deals were a great way to get going in the 1960’s, but they’re an anachronism in the here and now.

One thing remains clear, it would cost Toyota millions if not billions to buy out these distributors. What do you think, should they? Have you noticed a price difference between new Toyota vehicles in different parts of the country?

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  1. mk says:

    I’m sure different areas of the U.S. have msrp set differently according to region, just not sure how much they vary. Would be interesting to find out if someone would do the research though.

    • Jason (Admin) says:

      mk – Outside of the Gulf States and Southeast distributors, the pricing is the same around the country. However, packages and option availability change a bit from one region to the next, so you’re correct that the final prices will likely be a bit different.

      Still, the point here is that SE Toyota Gulf States Toyota have the right to do whatever they want. They’ve been smart not to push the envelope too far, but they do add on some features (pinstriping and undercoating, for example) that consumers in other regions don’t have to mess with.

  2. AD says:

    I hate Gulf States Toyota because every 4×4 Tundra is flex fuel so I have to settle for 4×2 when I want 4×4.

  3. Mickey says:

    They also give some great things you may not think of. Southeast Toyota Distributor LLC added these things I didn’t think of when getting the truck:
    Toyoguard Plus Protection Group which includes Roadside assistance, Rental car assistance, Emergency Towing, Vehicle VIN Etch protection Exterior paint sealant, Undercoating & Sound seal, and interior protection. At a cost of $700 back in 07 is still a bargain. Just breakdown once or like myself deer strike and being rear ended. Having a rental right away, and paint hasn’t been an issue. Also they do control the amount of Prius’s they sell too. We had to wait several days for them to release one the wife ordered back in 07. Now dealerships do have a few on the lot, not like back in 07 when they didn’t.

  4. Excellent beat ! I wish to apprentice whilst you amend your web site, how could i subscribe for a blog site? The account aided me a applicable deal. I had been tiny bit acquainted of this your broadcast provided bright transparent idea

  5. Tom says:

    I recently bought a Tundra CM in Ohio that originated from the SET region. It has a spray in bed liner that needed a small repair and was still in Warranty.

    My local dealers (OHIO) refused to deal with it cause they insisted it was an aftermarket add-on, even though I showed them the warranty info and installed options printout from a SET dealer.

    Got in touch with SET and the matter was taken care of. Long story – short. Toyota needs to educate the rest of the country on what is a Toyota warranted product and what is not, even if it does come from SET or GST, to insure customers outside of a specific region are still taken care of at the dealership level within another region.

    • Tim Esterdahl says:

      Tom,

      The spray-in bedliner is NOT a factory option. It is a distributor added option from Southeast Toyota. So… the dealer was correct to deny it and SET was correct to fix it since SET installed it after it rolled off the factory line.

      And no, Toyota won’t warranty it outside of the SET service area. Think of it like two different companies.

      -Tim

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