Tundra conundrum: Stores that got big now get creative

Toyota had hoped to sell more than 200,000 Tundra pickups this year. But through August, it had sold 107,330, and production is down for three months.
LOS ANGELES — Toyota of Escondido bet big on the Tundra pickup, and now the suburban San Diego dealership is struggling to make ends meet.

The store went all out when Toyota Division pushed dealers to renovate their stores and enlarge their service bays for last year's redesign of the full-sized Tundra.

Rather than merely expand the dealership, Toyota of Escondido built a separate $10 million truck-only showroom with 20 oversized stalls, heavy-duty lifts and parts storage — the works.

But that was before sales of the Tundra — along with those of the rest of the full-sized segment — went into the tank. Now Escondido and other Toyota dealers who built big in anticipation of soaring Tundra sales have to find innovative ways to meet their monthly nut.

Expensive venture

"It was a big investment, no doubt about it," says Tom Belt, general sales manager for Toyota of Escondido.

Belt had hoped to sell 100 Tundras a month, but the store is barely hitting half that number.

"Would we do it again, knowing where the market is? Any prudent businessman would wait," Belt says.

Toyota had hoped to sell more than 200,000 Tundras this year on its way to 300,000 in the near future. But Toyota was already running behind that pace when it halted Tundra production for three months starting Aug. 8.

Toyota won't say how many stores built stand-alone truck facilities. All dealers were told they needed to crank up truck service and sales operations in anticipation of the new Tundra's higher volumes. But company officials deny pushing dealers to make truck-only facilities.

"Toyota's Image USA II dealer facility program does not recommend large truck centers or dedicated truck facilities," Toyota spokeswoman Sona Iliffe-Moon said in a statement. "The program was designed for full-line flexibility and to meet changing consumer, market and dealer needs over the next generations of vehicles."

An industry source close to Toyota says the company historically had been cautious about pushing dealers to build facilities. That forced Toyota to rush its dealers to expand when the much-larger truck arrived.

"The dealers didn't have any lifts or bays big enough to handle the new Tundra," the source said.

Multiline dealer Fritz Hitchcock, of Puente Hills, Calif., is philosophical about the Tundra's travails. He recently built a separate Toyota truck service center with 14 stalls on the 3.3 acres vacated by the Volkswagen franchise he dropped.

"Sure, it's added rent and overhead," Hitchcock says. "I obviously wish the SUV and truck market didn't go in the toilet, but that's what we're looking at these days."

In talking with other Toyota dealers, Hitchcock says, he hears a reluctance to invest in store renovations, especially for trucks.

"Toyota is very aggressive on facility growth and upgrades, and that push has not slowed down," he says. "But if you have built a truck center, you can convert it into a Scion center or a small-car center, so there are some options there."

Toyota responded quickly to the Tundra overload by temporarily halting production at its Texas and Indiana plants. Toyota allowed the Escondido store to lower its inventory from nearly 500 Tacomas and Tundras earlier this year to 260 last month.

Nationally, Tundra inventories are at a 67-day supply, or about 37,000 units. That's down 12,000 units from just a few weeks ago and far below the Detroit 3's inventory of full-sized pickups.

Tundras in Tuscaloosa

Not every Toyota dealer is sharing in the misery. At Toyota of Tuscaloosa (Ala.), General Manager David DeSantis is neck-and-neck with last year's record pace for Tundra at a store he renovated three years ago. DeSantis expected to sell 30 Tundras a month this year but has been doing nearly twice that.

"Whatever else is happening in the rest of the world, it's not affecting us," DeSantis says. "To sell 100 Tundras and Tacomas a month in the 100,000-person Tuscaloosa market is pretty strong. But we gotta sell trucks or else we gotta take a pay cut."

While some dealers are slashing Tundra marketing costs, Pat Lobb Toyota in McKinney, Texas, is spending heavily. The two-year-old store spent $250,000 last year to launch the truck and has been nearly maintaining that pace this year, says managing partner John Mathews.

When the dealership opened, 170 Tundras were in the market area. Last month, the McKinney store sold 77 trucks, and it has sold 488 Tundras so far this year. What's the secret?

Home Depot displays

"We have a presence with ride-and-drives and data collection at every community event we can find in our market area," Mathews says. "We have Tundras on display at Home Depot, Tractor Supply stores and at every high school football game. We have a stripped chassis on the showroom floor. We press forward, no matter what the market is doing.

"If you believe truck business is bad, you're right. But you cannot convince me that guys who have to buy trucks are going to stop buying them.

"When you can lease a Tundra Double Cab for $199 a month, who cares how much gas is?"

At Toyota of Escondido, Belt says his store will be ready when the economy turns around.

"We've gone from 11th to sixth in our region in truck sales," he says. "When we come out the other end of this, we will have gained so much market share, I don't know if anyone can catch us. And everyone will know we have a truck center."

You can reach Mark Rechtin at mrechtin@crain.com

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