13-Toyota’s Good News/Bad News Story

Posted 4/17/08

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.

 

Update 7/10/25:

The stories of four competitors, GM, Ford, Toyota and Hyundai, provide a useful perspective on the automobile market in the years since 2008.

Both Ford and General Motors suffered through terrible years in the late 2010s. Ford’s product line fell behind its competition in the early 2000s (a Function failure). It lost market share and reported substantial net operating losses in the years 2006 through 2008. The Ford company streamlined its operations and reduced the number of models it offered.  In 2007, Ford had 27 different vehicle platforms across the world. By 2021, it was down to 2: Ford and Lincoln (Function failure through reduction of customer choice). In the process, it sold off or eliminated many of its other brands, especially the high-end product lines. While it came dangerously close to insolvency, Ford avoided bankruptcy and refused a government bailout.

General Motors declared bankruptcy in 2009 and took a government bailout, severely damaging its reputation with consumers (a Reliability failure). General Motors continues to own and operate a number of automobile brands across the globe. However, it also discontinued several brands. In addition, in 2017 GM sold its European division to French automaker PSA group after 16 consecutive yearly losses.

The ensuing years after the recession, have played out primarily to the benefit of the Asian competitors, as we summarize below.

In product lines, GM and Ford suffered severely in the 2008 recession. Both companies lost Function benefits as they pared their product lines in order to survive. Their reputations for Reliability took even a larger hit and have been slow to recover. GM has been able to grow its market share on the basis of its trucks and SUVs. Ford has lost market share. On the other hand, Toyota with its superb reputation for Reliability continued to gain market share. Hyundai also showed impressive share gains on the basis of its emerging reputation for Reliability and Function innovations in the form of advanced technology and superb design in both exteriors and interiors.

Company reputations also reveal themselves in pricing. Toyota is now the effective price setter in the US market because its automobiles enjoy quality reputations and strong resale values. Hyundai’s pricing strategy looks more like that of a Predator, offering equal benefits for somewhat lower prices. GM and Ford maintain premium pricing in trucks and SUVs where they have some tariff protection. On the other hand, their other products command lower prices both as new automobiles and as used cars.

To learn more about how companies “fail” in a market, including “the hidden failure” of not getting an invitation to bid on a customer’s purchase go HERE.

What are the implications for a market when a new competitor, such as the Korean automobile manufacturers, enters the market with better performance at lower prices? Go HERE to find out.

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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.