Being a Toyota dealer has traditionally been a license to print money. But with the Detroit and Korean brands making better cars, there is more pressure on easy-selling vehicles such as the Corolla and Camry.
With the rate of industry sales growth expected to slow in 2014, what can Toyota dealers do to stay ahead of the competition?
Jay Caldwell, chairman of the Toyota National Dealer Advisory Council, spoke with Staff Reporter Mark Rechtin about what this year holds in store.
Q. How was 2013 for Toyota dealers?
A. Overall, it was a great year. Toyota was up 7 percent. Camry was the No. 1 car in America for the 12th consecutive year. The momentum we have is great.
Our store had a record sales year on top of a record year on top of a record year. Our parts and service was up as well. We were up 24 percent in November. If we didn't have some ice and snow, we'd be doing even better.
What major issues do Toyota dealers face this year?
It appears by all estimates that our growth is going to flatten out compared to 2013's growth over '12. Growth will be more around 3 percent as an industry and for Toyota. So how are we going to improve our market share? We really have to focus on retaining customers. That's a huge piece of our business. We have a great brand and an incredible group of dealers. But we can be better at marketing our cars, better at servicing and retaining our customers. And we can be better at communication.
What do you hope to accomplish in your second year as chairman of the dealer council?
Our national dealer council is a great group of dealers, extremely passionate, extremely focused. We made some good progress over the last year on several issues.
Last year and again this year, I want to focus on communication from the council back to the dealers, closing that loop from when a dealer submits input up through the funnel to national. So many times as dealer, you send that message up and you don't hear back, and it seems like no one is listening. But someone is listening.
If we do a better job of communicating back, it will increase participation in the process. Input from all our dealers absolutely shapes our priorities in our conversations. Getting dealer input before our trip to Japan will help us to tell Toyota Japan what our dealers need and want. Toyota really values our opinions, and they believe we add value. Without dealer participation and passion to feed that to a national council, it wouldn't be as effective. If you haven't been involved, get involved!
Are Toyota dealers profitable?
Yes. I believe 2013 will be another record profit year for Toyota dealers.
Are Toyota dealers making money on new-car sales?
We're certainly facing some pressure from a retail standpoint. The market is very competitive and can withstand a certain price point for a car. But new-car sales drive our entire operation. Selling those new cars feeds our service department and gets us a trade for a used car. Our new-car department is profitable at our store.
Now that times are better, is Toyota pushing harder about its facilities renovation program?
In 2008, we moved into a new store. It's a huge long-term investment, but it has paid off for us each year, with capacity in land and the service department. We've doubled our service business in the past five years. It's a difficult decision for every dealer. But Toyota believes and acts like they are our business partner. They don't say, "You gotta do this." It's a great program. Every dealer who has built has said they wish they'd done it sooner or built bigger or gotten more land.
Are any customers still talking about unintended acceleration?
We don't hear from our customers about it anymore.
What's missing in the product lineup? What's your wish list?
Two or three major things we're looking for. We really want a Toyota-branded sports car. And we've been asking for it for the three years I've been on the council. The other thing we're lacking is all the iterations in full-sized truck, like a three-quarter-ton or a diesel. Lots of regions have good sales of commercial vehicles, even in L.A., and with that full-sized selection, it would put us in a good position with the market growth that's out there. The third option would be some all-wheel-drive options for products.
How is the Corolla launch going?
For us, it's doing great. The only pressure it's getting is that Camry is doing so well. It may be pushing on Corolla a little bit.
Is it getting tougher to sell Camrys against the competition?
We are seeing more competition. Some of our competitors have woken up and recognized it's a great market to be in. I think it's good for Toyota and its dealers to have that competition. But our Camry is the best car on the market, the best value on the market. I just sold one to a good friend, and he said it's as good as what a Lexus was five years ago. Toyota dealers are committed to keeping Camry No. 1. We don't have to make any big statements; we just need to do what we do.
Could you sell more Tundras?
One thing I've learned: We will never have the exact car the salesperson needs to be able to sell. There are a few regions that would say we have enough. But most don't. Our council has asked for increased production of Tacoma and Tundra. Not either/or. It's both. The plant in San Antonio can fluctuate back and forth, and that's helpful, but we need more of both of those trucks. A core value for Toyota is, if they take that step, they have to add associates to do it, and then what happens if the segment goes off and a year from now they have to let some associates go? It's a long-term decision.
How are you doing with inventory?
It's great. Nationally, Toyota has calculations that show our ideal inventory, and we are right on that line, right at 62 days. But we need more Tacomas and Tundras. We have an opportunity for more RAV4s and 4Runners.
What could the factory do to help boost new-car margins -- or what is the factory doing that squeezes dealer margins that dealers would like to see stopped?
The market sets those transaction margins. The market sets that for us. There's nothing artificially that the factory can do. Toyota can help by building exciting and innovative products for us, to help drive those margins. We have the second-highest stated margins in the industry, but the transaction margin is what matters to us.
Are you hearing from dealers who want to drop Scion?
I don't think many have. In November, I was at the Scion national dealer council meeting, and it was only a few dealers who had walked away, but a few wanted to get into the business. The dealer count hasn't really changed. Toyota doesn't want to reduce it. They just didn't want anyone to feel pressured to keep Scion if they didn't want to.
But at that Scion meeting, there were some really passionate dealers, with the young customers coming into the brand who've never shopped Toyota before. Yeah, the product has gotten a little stale, and we need to get that new product. It will be a while before we see a significant refresh of these vehicles, but we need to be committed to this brand for it to do what we need it to do.
Are you happy with what Toyota is doing to support its dealers' certified pre-owned sales?
Our program is a great program. Toyota helps us market the certified program and helps us promote those cars. It's achieving what we want it to achieve.
What can Toyota do to improve its F&I relationship?
F&I is dear to my heart because it's where I learned the business. The relationship [with the captive] makes all the difference. And we have a true business partner. They were there when [the market] wasn't fun and supported us with leasing. And we're going to need them in a flatter, more competitive market.
What is Toyota doing to attract more service business?
There's nothing more important than ToyotaCare. We're retaining customers at a rate we never have before. It's working at our store for sure. From a marketing standpoint, some parts and service [communications] are now aligned under marketing. There are some changes how we market to our service customers in a very positive way.
With accessories, we want to have accessories when we launch the car ... not a few months later. And our parts guy came to me saying he just got a catalog for accessories available for the 2014 Highlander. We might have them even before the Highlander goes on sale. That's a big win for dealers.
Did Toyota's 2013 Super Bowl RAV4 commercial work? Is it a good idea to do the Super Bowl again with the Highlander in 2014?
Absolutely, yes. Digitally, they released the RAV4 ad a little early, awareness was very high and they were able to use the campaign a little longer. They did a great job.
Is Toyota doing enough on the social media front?
It's important that the factory is involved on the social media side. But more important is that dealers make that relationship with the customer, to be engaged from a social media standpoint.
Has Toyota done anything in the past year or so to help or hinder dealers who are grappling with the hand-off from one generation to the next?
Nationally, I don't think they have anything [formal] from a succession-planning standpoint. I don't know of any dealer trying to sell his store who is unable to do so. It's not difficult to sell a Toyota store.
It would be hard for a manufacturer to get involved in that. It's so personal. We're talking about very closely held private companies, where there is a single personality involved. But it's a good thing for NADA to promote. You hear too many stories about unfortunate circumstances, and people aren't prepared. Whether it's one year or 10 years before you exit, it's important to plan.