Toyota just keeps roaring back

August 8, 2013, 11:04 AM UTC

Amid the gloom of bankruptcy in the city of Detroit, one bright spot has been the performance of its hometown automakers.

General Motors (GM), Ford (F), and Chrysler have been gaining ground from competitors, posting solid profits, and winning historic praise for the quality and drivability of their products. They are producing standouts in some of the industry’s most hotly contested segments. The mid-size Ford Fusion is selling as fast as dealers can load the delivery trucks, while the full-size Chevy Impala has won an unprecedentedly high rating from influential Consumer Reports.

But a closer look at the sales numbers and financial results just published reveal that the big winner for the month of July was — hold for it — Toyota.

That assertion will draw hoots and hollers from Detroit loyalists. They point out — correctly — that the local teams have added market share this year while Toyota (TM) has lost a smidgen. And they will complain — also correctly — that Toyota is getting an unfair advantage from the cheap yen and is boosting sales with unusually high incentives.

All true. Yet take a look at what happened last month:

–More Americans bought cars and trucks with the Toyota emblem on the hood than with the Chevrolet bowtie. Baseball, hot dogs, apple pie … and Toyota, anyone? That’s despite the far lower number of Toyota dealers and Toyota being far less competitive in the industry’s hottest segment: full-size pickup trucks.

–Also in July, Toyota Motor Sales in the U.S. sold more light vehicles than Ford Motor Co. — again despite having far fewer dealers and selling far fewer trucks. Ford has been having a fabulous year, but last month, Toyota outsold it to become the second-largest car company in America.

–Toyota appears well on its way toward producing more than 10 million vehicles worldwide this year, which would represent an all-time record for any automaker. GM and Volkswagen will have to fight it out over second place.

As one analyst gleefully exclaimed, “The samurais are back!”

Toyota’s July surge came despite the announcement that it would pay $1.6 billion to compensate vehicle owners who suffered financial losses as a result of sudden, unintended acceleration between 2009 and 2010. The settlement will compensate Toyota owners who sold or traded in their vehicles at a loss with $125 to $10,000 per car, depending on the level of depreciation. It does not, however, cover individual personal injury and wrongful death lawsuits that will have to be contested later. The first case to go before a jury is starting in Los Angeles. (Toyota also announced a voluntary recall on Wednesday of 342,000 Tacoma trucks over faulty seatbelts).

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The depth and durability of Toyota’s appeal speaks to its uncanny connection with its customers. Most auto companies have their share of flops (GM’S 2013 Malibu, Honda’s 2012 Civic) but Toyota rarely misses the mark and seems to have a sixth sense for what consumers want. Detroit-based blogger Peter De Lorenzo, who dismisses Toyotas as “a white-hot bowl of oatmeal,” concedes that ” Toyota is … proof positive there are legions of Toyota buyers out there who relish the opportunity to own a bland appliance that blends into the woodwork.”

Other critics remain unfazed. With the Camry extending its lead as the best-selling passenger car by any manufacturer, it wasn’t long before suggestions appeared that Toyota had rigged the game by boosting incentives and ramping up fleet sales. But the increases only dragged it into the same incentive neighborhood as other mid-size competitors like the Malibu and Nissan Altima. Toyota merely started playing the same game as everyone else.

More than just moving the metal, Toyota is also doing something far more significant: It is reaping the rewards of a huge technological and financial risk it took two decades ago — the development of the gas-electric powertrain and its installation in the revolutionary Prius. The move began the adoption of the gas-electric hybrid as the preferred alternative to the internal combustion engine. Once considered marginal and fringe, the New York Times reported last week that Americans have bought nearly 300,000 hybrids so far this year.

Accounting for nearly half those hybrid sales was the Prius. Chief engineer Takeshi Uchiyamada, who oversaw the Prius’s development, was rewarded earlier this year by being named chairman of Toyota. When the project commenced in 1993, he set two goals: to develop new production methods and to wring better fuel economy from the traditional internal combustion engine. His target was 47.5 miles per gallon. The 2013 Prius has a combined city/highway mileage rating of 50 mpg.

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There were skeptics aplenty when the first Prius arrived in the U.S. in 1999. GM executive Bob Lutz dismissed hybrids as “an interesting curiosity” in 2004, when gas was selling for $1.50 a gallon. He later recanted and went on to lead development of the Chevrolet Volt, a hybrid with a plug-in feature that allows it to travel 35 miles on an electric charge. But even though gas now costs nearly $4 per gallon, the Volt has failed to catch on — only 11,643 have been sold this year — and GM has cut its price by $5,000.

Toyota won’t be cutting the price of the Prius or any other of its cars built in Japan anytime soon, despite the weaker yen. At 100 to the dollar, the yen is about 25% cheaper than it was a year ago, the most favorable it has been in years. Although Nissan has taken advantage of the downturn to cut its prices up to $4,400 on seven popular models, ever-cautious Toyota is reaping not greater market share but greater profits. It made $5.5 billion in 2013’s April-June quarter — more than twice as much as GM and Ford combined — and it now expects to make nearly $17 billion this year.

So while we should all root for the home teams and the city of Detroit’s speedy and sensible exit from bankruptcy, we need to keep in mind what they are up against. These modern-day samurais — these spiritual descendants of 10th century warriors — are indeed back.