Why February’s U.S. Sales Results Are Very Encouraging For Toyota Motors

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In the month of February, sales of Toyota Motors (NYSE:TM) grew by 13.3%, while those of Ford Motor grew by only 2%. [1] [2] This is unusual, in that it only happens once or twice a year, but what’s disconcerting for the U.S. based auto maker is the manner in which it was upstaged by Toyota in the previous month.

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

SUV Sales on the Rise for Toyota

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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.

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 13.3% compared to the same month in the previous year. 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. Additionally, sales of Lexus SUVs and crossovers rose by a whopping 46%. [3]

The Difference Between Toyota and Ford

This is all good news for Toyota but what February’s sales figures underscored was its dominance in the passenger car market. Toyota only outsold Ford by a tiny margin of a few thousand in the U.S. auto market in February, but it sold many more cars than Ford. In the recent past, Ford’s compact Focus and midsize Fusion have been significant for the company in showing that it could compete with import brands in making fuel-efficient, well-built cars. But in the month of February, sales of Focus fell by 12%, while those of Fusion fell by 5%. [4] In contrast, the Japanese auto maker Toyota gained much ground in the hotly contested compact and midsize markets. The sales of Toyota’s midsize Camry increased by 13.6%, while those of its compact car Corolla grew by 10%. [3] Sales of Toyota’s big Avalon jumped by 34%, even as sales of other big sedans have fallen recently. [3] In fact, among all Toyota car models, only the Prius showed a decline in sales, which is no surprise considering the fall in gas prices recently. Both the Camry and Corolla models are fresh in the market — the Corolla was refreshed in 2014 and the Camry in 2015. Ford is planning on rolling out a refreshed version of the Focus but its Fusion is unchanged for 2015. This is one factor that is contributing to the difference in sales numbers.

Another factor has to do with the pricing: the depreciation of the yen against the U.S. dollar has given the Japanese auto maker a big pricing advantage. The company earns more yen for each dollar, allowing it to charge fewer dollars for its cars, thus giving it a leg up against its competition. As a result, Toyota is now offering aggressive lease deals for its cars: a 24-month lease deal for both Corolla and Camry, with a $129 monthly installment for the former and $139 for the latter. The alternative is a loan deal at 0.9% rate of interest if the consumer prefers to buy.

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Notes:
  1. Toyota Feb U.S. sales up 13.3% at 180,467 units, Market Watch, March 2015 []
  2. Honda Misses February Sales Estimates, Bloomberg, March 2015 []
  3. Ref: 1 [] [] []
  4. Ref: 2 []