The New Corolla Is Critical To Toyota’s North America Business

by Trefis Team
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Toyota Motors (NYSE:TM) finally unveiled its much-awaited new Corolla recently. The compact car segment is more competitive than ever in the U.S. with Honda Motors (NYSE:HMC), Ford Motors (NYSE:F) and Hyundai rolling out the refreshed versions of Civic, Focus and Elantra, respectively, last year. The Corolla has already fallen down the pecking order with the Honda Civic outselling the vehicle in May along with the Focus and the Elantra breathing down its neck. The all new 2014 Corolla, with slight modifications, was also showcased at Turkey as part of its European debut.

See our complete analysis for Toyota Motors here

The price of the base model is expected to start from $16,000, roughly the same as that of the existing Corolla. With a greater focus on fuel efficiency, Toyota is now able to claim a mileage of the psychological 40 mpg mark although that is for the more efficient Eco 1.8-liter. For the base model, a gallon of gasoline will yield about 34 miles on the highway and 27 miles in the city. Industry experts forecast the annual sales of Corolla to exceed 300,000 units in 2013. Through May, Toyota had already sold 132,514 units. [1]

The success of the new Corolla is all the more important for Toyota now that the Accord is outselling the Camry. The refreshed version of Camry isn’t going to be out anytime soon. Although Toyota started off the year strongly, its sales have slacked in the last few months with April even turning negative. In the first five months of the year, Toyota’s American sales are up a mere 2.5% compared to a 7.3% gain for the overall auto industry. [2] North America makes up for about 30% of Toyota’s sales. Toyota’s performance in North America is critical since some of the other major areas such as China and Japan are likely to witness tepid dales.

Uncertainty still looms over the sales of Japanese auto companies in China. After tensions broke out between China and Japan last year, Japanese brands have fallen out of favor with the Chinese public. Toyota’s sales finally turned positive (up 0.3%) in May but they still aren’t back to normal yet. [3] One month they improve but in the other, they worsen. So, it’s still not clear if the May sales represent a definite shift towards normalcy or are a one-off. The automaker expects its sales to normalize not before autumn. Recently, even Ford overtook Toyota in China.

The automaker’s home turf, Japan, is also likely to remain weak this year. Sales were artificially boosted with the help of government incentives last year, so the company has kept its expectations subdued for 2013. Toyota predicts its Japanese sales to fall by as much as 10% in the ongoing fiscal.

We currently have a $110 price estimate for Toyota’s stock, which is about 10% lower than the current market price.

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Notes:
  1. Plain-vanilla Corolla adds some sprinkles, June 10, 2013, autonews.com []
  2. U.S. auto sales, wsj.com []
  3. Toyota’s China Sales Rise in Signal Anti-Japan Sentiment Easing, June 3, 2013, bloomberg.com []
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