Passenger Car Market Decline A Huge Worry For Toyota and Honda

Toyota Motors (NYSE:TM) and Honda Motor Co. (NYSE: HMC) have long dominated the U.S. passenger car market with their sedans Camry, Corolla, Civic, and Accord. However, in the past couple of years, passenger car sales in the U.S. car market, the second biggest auto market in the world, have declined. The trend looks set to continue in 2017. In the month of May, Toyota’s overall vehicle sales declined by 0.5%, while Honda’s sales increased by a meager 0.9%. Looking at sales for May more closely, sales of Toyota’s sedans Camry and Corolla declined by 11.8% and 10%, respectively. Sales of Honda’s sedan Accord increased by 5% but those of Civic declined by 9.6%. However, on a year to date basis, sales of Camry and Corolla have declined by 11.8% and 8.4%, respectively, and Civic and Accord declined by 8.3% and 7.3%, respectively.

This poses a huge problem for both these companies since these vehicles have long been stable revenue streams for them. As consumer preference shifts towards crossovers and SUVs, and profits are predominantly made selling pick-up trucks and commercial trucks, these companies will have to shift their emphasis completely. To be sure, Toyota and Honda already have successful SUVs. Honda’s CR-V became the highest selling SUV in the U.S. auto market last year. So far this year, sales of Honda’s SUVs CR-V and HR-V have increased by 22.8% and 26.4%, respectively, and Toyota’s SUVs RAV4 and Highlander increased by 8.4% and 20.8%, respectively. It is because of the success of these companies in the SUV segment that they have been able to offset the decline in the passenger car market. However, despite these gains they are still struggling to grow their overall sales given the lower proportion of these segments in their overall sales mix. Going forward, both these companies will have to release multiple successful models in the crossover, SUV, and pick-up truck segment to keep their profit levels from the U.S. market at historical levels.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Toyota Motor

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