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.
In 2016, Fiat Chrysler severely cut back its production of sedans. GM and Ford followed the same approach in 2018. These manufacturers have largely abandoned the sedan market, which makes up about 30% of new vehicle sales. Meanwhile, in 2019, recent entrants Hyundai (1986) and Kia (1992) sold over 700,000 and 600,000 vehicles respectively in the US market.
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.