Toyota Keeping Pace With U.S. Automakers Despite Dip In Passenger Car Sales

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Just a few years ago U.S. auto makers were struggling in their homeland. Rising gas prices and the recession convinced many U.S. consumers to be more budget conscious and as a result they started ditching their SUVs and trucks in favor of more fuel-efficient vehicles from import brands like Toyota and Honda. This helped Japanese auto maker Toyota Motors (NYSE:TM) overtake Ford Motors for the no .2 position in terms of market share in the U.S. auto market in 2007.

However, the supremacy of the fuel-efficient passenger car in the U.S. auto market was short lived. It has only been a short while since the price of gas fell below $3 per gallon but consumers have already started ditching passenger vehicles for heavier, more spacious cars. Sales of cars are falling, while sales of trucks, SUVs, and crossovers are rocketing. Once again consumers are preferring the extra space, power, and carrying ability of bigger vehicles and are willing to pay up for it. This is great news for domestic car companies like General Motors, Ford Motor, and Fiat Chrysler Automobiles, but now even foreign car companies like Toyota and Honda have representation in this market.

We have a $168 price estimate for Toyota, which is about 20% higher than the current market price.

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February U.S. Sales Bode Well For Toyota

Each of the Japanese auto maker Toyota’s car brands-Toyota, Lexus, and Scion-sold extremely well in the month of February. Including all car brands, the sales of Toyota’s vehicles rose by 7.6% compared to the same month in the previous year. [1] The growth in sales of Toyota’s vehicles can be attributed partly to the recently refreshed versions of its best selling vehicles Camry and Corolla being present in the dealer lots. But the demand for heavier vehicles from Toyota is also growing. Sales of SUVs, crossovers, pickups, and minivans from Toyota grew by 17% on a year-over-year basis. [2] Additionally, sales of Lexus SUVs and crossovers rose by a whopping 46%. Lexus is an important business segment for Toyota. [2]

The share of the luxury car market of the overall U.S. auto market has stayed in the 10.5%-11.5% range since 2008. Even though several luxury car makers such as Audi, Land Rover, Mercedes-Benz, Porsche, and Tesla have been gaining share, other car makes have slipped or disappeared entirely. Lexus belongs to the former category. Despite luxury car makers managing to persuade non-luxury buyers to upgrade to the luxury car space with the use of attractive lease programs, roughly the same number of luxury car owners have exited the space.((Luxury Share of US Auto Market Remains In 10-11% Range, Polk, January 2014))

However, car sales at the high end are often driven by stock-market gains. In the last two years, factors such as pent-up demand, new car launches, and cheap credit contributed to the near 8% gain in auto sales, most of the wealth funneled into the auto market was a result of some of the best results recorded by Wall Street stock-indexes. Consequently, the biggest movers in the auto market were luxury vehicle brands such as Cadillac and Lamborghini. [3] After hitting all time highs in March the last two years, gains in the stock market are expected to slow in 2015. Correspondingly, it is highly optimistic to expect the luxury vehicle brands to start eating up the non-luxury brands’ market share. Unsurprisingly, many premium car brands are looking instead at the Chinese luxury car market. However, with Toyota unlikely to shift the production of Lexus to China anytime soon [4] given its concerns over quality, gains from this space are unlikely. Therefore, any gains made from the U.S. luxury car market become even more important for the company.

Competition Also Doing Well

In the month of February, total car deliveries rose by 4% for GM on a year-over-year basis. [5] But the sales of heavier vehicles grew at a much faster rate. Pickup sales grew by 37% and large SUV sales surged by a massive 66%. [6] The growing contribution of heavier vehicles in its sales mix  drove the average transaction price in February higher by around $2,700. [6] The situation was similar at Fiat Chrysler with sales growth driven by SUVs, trucks, and crossovers. Sales of the Jeep brand grew by 21% year on year in February, while those of Ram pickups and Vans grew by 12%. Comparatively, Ford presented a mixed picture. [6] Its sales in the crossover/SUV category declined last month but the sales of the F-150 pickup grew by 4% even despite severe supply constraints. Only one of the two F-150 producing factories is back up and running and dealers are still selling down Ford inventory that they built up toward the end of 2014. [6]

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Notes:
  1. Toyota’s February U.S. Sales Miss Estimates, Bloomberg, March 2015 []
  2. Ref: 1 [] []
  3. Wall Street Gains Power Luxury Car Sales Into Fast Lane In 2013, Yahoo, January 2014 []
  4. Lexus aloof from China production while Nissan, Honda step in, Reuters, April 2014 []
  5. Weak car sales hamper Ford, GM, Automotive News, March 2015 []
  6. Ref: 5 [] [] [] []