QUESTION & ANSWER

Toyota's Lentz: Don't panic over collapse; market will stabilize

Jim Lentz: Despite the "knee-jerk reaction" to bad economy, "the markets will moderate."
LOS ANGELES — It used to be that when the market was up, Toyota sales were up. And when the market was down, Toyota sales were still up.

Not so this year. Toyota Motor Sales U.S.A. Inc. is down into the mire with the rest of the industry. Through June, Toyota, Lexus and Scion sales combined were off 6.8 percent. Like everyone else, Toyota is struggling to sell big trucks and SUVs.

But Jim Lentz, president of Toyota Motor Sales, isn't hitting the panic button. In an interview with Automotive News Staff Reporter Mark Rechtin about the power of demographics, Lentz said medium- and long-term prospects for the market are pretty good.

You have to admit things look pretty bad right now.

Year-to-date car sales are on a SAAR of 7.8 million units, whereas last year it was 7.9, so that's basically flat. But light-truck sales were 8.4 million units, and they are down to 6.9 year-to-date, with a June rate of 5.9 million.

There's knee-jerk reaction from the loss of value in homes, fear of inflation and the economy, and gas prices. But the markets will moderate. They may not get where they were, but they won't be at the run rates they are now. It feeds upon itself. Just look at the used-truck market. If you weren't upside-down two months ago, you are today. When a dealer already has a bunch of trucks and can't take yours to the auction, that leads to malaise in the market.

That will work its way through. That's why we started having APR programs on our certified Tundras. We wanted to have some pull into used Tundras to make room on dealer lots. At some point these prices will hit a level where even at 18 mpg, it's still a great deal. That will start to turn the overall market.

What are plans for the Princeton, Ind., and San Antonio truck plants, which are running so far under capacity?

We are still building Tundras in both places and are making adjustments in takt time (which measures the seconds it takes to perform each production function) and nonproduction days. We have to react to the market like everyone else. Right now we are studying where we think the long-term frame-based vehicle market is going to be. It's fairly expensive to move a truck-based vehicle line to make something car-based, so we are studying other markets that have demographics for these types of buyers.

Might you build Camrys alongside the Sienna minivan in Indiana? You did it in Georgetown, Ky.

It's possible. But if you look at light-truck sales, the small passenger van was up slightly. Sienna is late in its life cycle. As people move out of full-size SUVs — and we're talking about people using them as people movers and not towing boats — at some point there may be resurgence in the small-van market. And you have to ask where that SUV outflow is going. If the SUV is primarily for moving passengers, they have to go into other configurations. Sienna is based on a passenger car. Theoretically, we could build similar vehicles on that line.

What is the easiest way to crank up Corolla production: make changes at either the NUMMI plant in California or the Cambridge, Ontario, plant, or bring over more units from Japan?

In the case of NUMMI, there is a certain flexibility of Corolla and Tacoma. Our annual sales plan gets adjusted a couple times a year. We can change our production request for a few less Tacomas and more Corollas. Same with Canada. (Editor's note: Toyota said last week that it is increasing Tacoma pickup output in Tijuana, Baja California. It's unclear whether that will allow Toyota to increase Corolla production at NUMMI.)

In Japan, they have to look at what countries are served by the plant that makes Corolla. If we ask for more and other countries ask for less, then we get more. If you do it at a couple thousand units at a crack, you can get 20,000 or 30,000 more units over the course of a year. But if you go way over your annual plan, which is used for suppliers, that can get complicated. In the case of Prius, there is so much demand globally and so much lead time for components that it is too difficult to raise production over a short time.

Why are you bullish in the medium term when so many people are worried about a long-term recession?

We are adding 32 million people in the U.S. by 2020. That's like adding the population of Canada. Part of that is immigration and part is birthrate. Add the growing affluence of growing populations, boomers hitting retirement and the kids inheriting trillions of dollars. The fundamentals are there, so the market is being driven by overall demographics.

But what about gasoline prices?

In 2002, gas was $1.50. If, over time, over seven years, it had gradually moved up to $4, we wouldn't have this problem. It's not the price, it's the rate of change of the price. You budget for that based on what you make. If gas stays at this price for a period of time, people will adjust their budgets. So we all can't knee-jerk and say trucks are dead and gone, that no one is buying SUVs anymore.

There are still families with three kids who need three-row SUVs who can't fit into a Prius. 

You can reach Mark Rechtin at mrechtin@crain.com

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