13-Toyota’s Good News/Bad News Story
The North American auto market has turned ugly. Normally, analysts expect the industry to sell about sixteen million vehicles a year, about what we sold in 2007. We seem to be on track to sell around fifteen million in 2008. Today GM, Ford and Chrysler are all losing money in the North American market. This is a market that we would define as Hostile.
A Hostile market is an industry with low industry-average returns on investment for the majority of the industry’s competitors. Hostility is the result either of a fall in demand or of the expansion of competitors in the marketplace. Most of the history of Hostility in the North American market is due to the expansion of competitors. Now we see both a fall-off in demand as well as the expansion of competitors.
Toyota is the most obvious of those expanding competitors. Recently, Toyota began to suffer sales declines along with its North American rivals. That’s the bad news. The good news, however, for Toyota is that its fall-off in demand was significantly less than that for GM, Ford and Chrysler. A year ago Toyota had a 15.6% share of the market. Now they are up to 16%.
In fact, all of the big three Japanese manufacturers are doing well in North America. A year ago, Toyota, Honda and Nissan, combined, had a market share of 31.9% of vehicles sold. Today it is 33.4%. On the other hand, the big three domestic producers had a market share a year ago of 52.1% of vehicles sold. Today their share is 50.1%. The big three domestic producers have lost two share points. The big three Japanese producers have gained one and a half of those lost points.
Yes, Toyota has problems in North America. It now estimates that it has about one assembly plant’s worth of excess capacity. Still, the good news is that when the market does recover, Toyota is in a very strong position. It continues to gain share. This is the key metric for Toyota.
Typically, the best industry leaders perform well, even in down markets. Toyota is a good example of a leader performing well, despite a Hostile market.
Competitive actions over the last few years indicate that the US domestic producers are at a significant cost disadvantage to their Japanese and Korean competitors. The US producers are withdrawing from important parts of the US market. At the same time, relatively new Korean manufacturers are joining their Japanese competitors in expanding in that same market. The two best consultants in the world have concluded that the US domestic producers continue to weaken in the market.
In 2016, Fiat Chrysler severely cut back its production of sedans. GM and Ford followed the same approach later. These US manufacturers have largely abandoned the sedan market, which makes up about 30% of new vehicle sales. In 2018 and 2019, the largest US manufacturers, GM, Ford and Stellantis decided to largely withdraw from the sedan market in the US. The companies faced fierce competition, especially from Japanese and Korean auto manufacturers. Ford no longer offers a sedan. GM offers three sedans across its several brands. Stellantis offers very few sedans as well. Meanwhile, in 2019, recent entrants Hyundai (1986) and Kia (1992) sold over 700,000 and 600,000 vehicles respectively in the US market.
In 2020, traditional US domestic manufacturers GM, Ford and Chrysler controlled only 48% of the light vehicle market in the US. (GM 18.35, Ford 18.16, FCA 11.9).
THE SOURCES OF STRATEGYSTREET.COM: For over30 years we observed the evolution of more than 100 industries, many hostile. We put their facts into frameworks applicable to all industries and found patterns. Strategystreet.com describes the inductive results of these thousands of observations and their patterns.