It looks like Toyota Motors (NYSE:TM) intends to become more American. The automaker plans to raise the production of the Corolla in the U.S. so that the model can be exported to Latin America and the Caribbean. The move is aimed to protect the automaker from yen fluctuations.  Although the recent devaluation should have only made exports from Japan more attractive, the automaker has to incur high transportation expenses- in dollars, which means more yen at today’s exchange rate.
The stakes are high are for Corolla and therefore Toyota can’t afford to take any risk. 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.
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Toyota has done well this year in the U.S. Its total sales are up 9.6% through August. However, the world’s largest automaker sees some upside in the light truck segment, a category that has traditionally been dominated by American car manufacturers. The light truck category consists of pickup trucks, SUVs and crossovers. Pickups are an lucrative segment for any automaker since they typically have higher margins compared to mainstream cars.
The automaker recently released the 2014 version of the Tundra pickup. The refreshed model is more muscular and spacious giving it a distinct American look.  A model upgrade was long due since the vehicle hadn’t been refreshed in seven years. The current version of Tundra does not even feature in the top 20 vehicles sold in the U.S. Although toppling either the F-Series or the Silverado looks highly unlikely, the Tundra does offer a good alternative.
Grabbing a foothold of the light truck segment is more of a long term project for Toyota, something similar to how American manufacturers have made their presence felt in the small car and mid-sedan segments over the years.
On a cautious note, 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.
Near Term Challenges
Toyota’s big challenge, however, will be to maintain the leadership of its Camry mid-sedan. The Camry has been the top selling car in the U.S. for 15 times in the last 16 years. There was a time when there were pretty much only two options in this category – the Accord or the Camry. However, others have joined the fray now and with plenty of good cars in this segment, Camry’s position is under threat. Camry’s sales have been flat this year in the U.S. On the other hand, sales of Accord, Altima and Fusion are up 17.5%, 8.9% and 13.4% respectively.
Toyota’s North American operations, which subsume U.S. sales, account for about 30% of the company’s sales.
We have a $120 price estimate for Toyota, which is about 10% lower than the current market price.Notes:
- Toyota to export U.S.-built Corollas to Latin America, September 26, 2013, suntimes.com [↩]
- 2014 Toyota Tundra makes a bold statement with rugged new look, September 24, 2014, nationalpost.com [↩]