Toyota Unveils 2014 Corolla Pricing Which Is Pivotal To Its Profitability

by Trefis Team
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Toyota Corporation (NYSE:TM) finally released the pricing of its much-awaited 2014 Corolla. The base model will cost customers $17,610, about $570 more than the previous version but will contain additional features such as LED running lights, Bluetooth and six speed manual transmission. [1] In terms of fuel efficiency, a gallon of gasoline will yield about 34 miles on the highway and 27 miles in the city.

Customer reception to the Corolla is critical to Toyota’s profitability since the automaker sells an awful lot of these cars worldwide. In 2012, the automaker sold about 1.2 million units or approximately~13% of its total vehicles. With an average sticker price of about $20,000, the car adds a staggering $25 billion (or maybe more, if you add the auto parts and maintenance services) to Toyota’s top line. Brisk sales of the Corolla will also help Toyota retain bragging rights of selling the most popular car in the world.

Toyota is confident about the upcoming model and raised the sales forecast for the Corolla to 300,000 units in the U.S. this year. Furthermore, the automaker expects to sell 330,000 units next year when the refreshed model will be on sale for the entire year. [2]

See our complete analysis for Toyota Motors here

Competitive Compact Car Market

Competition in the small car segment has increased over the years with cars such as the Focus, the Civic and the Elantra which are popular among the American public. Toyota has so far managed to sell 183,435 Corollas in the U.S. through July, which is about 4.6% more than the previous year figure. In contrast, the automotive market has gained ~8% in the same period. Furthermore, the Civic, which was refreshed last year, now sells more briskly than the Corolla.

Toyota has also been disciplined in its pricing since the automaker does not want to compromise on the margins for a few extra sales. A weakened yen is boosting the automaker’s overseas profits. The company’s net income in the latest quarter doubled as a result of which the automaker raised the full year profit guidance.

All The More Important

The success of the new Corolla is all the more important now that the current version of the Camry is struggling in comparison to its rivals. Moreover, the refreshed version of Camry isn’t going to be out anytime soon. Although the Camry is still the highest selling car in the country, its sales have been flat this year. On the other hand, sales of Accord, Altima and Fusion are up 18.8%, 7.4% and 13.4% respectively. [3]

Toyota’s North American operations, which subsume U.S. sales, account for about 30% of the company’s sales. The fact that most of the sales gains in the American automotive market are coming from light trucks and pickups, an area where Toyota has had a weak presence traditionally, could be a dampener for the automaker. The rebounding U.S. housing market is fueling growth of pickups as they are used extensively in construction activities. The recently introduced Tundra 2014 could provide some upside to Toyota, but since it such a small player in the pickup segment, even an aggressive sales gain wouldn’t have a significant impact on the income statement.

We have a $119 price estimate for Toyota, which is about 5% lower than the current market price.

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Notes:
  1. Corollin’ On Up: Toyota Prices 2014 Corolla from $17,610, Details New Trim Levels, August 27, 2013, caranddriver.com []
  2. Toyota Hopes Aggressive Restyling Will Boost 2014 Corolla Sales, August 13, 2013, wsj.com []
  3. U.S. auto sales, wsj.com []
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