Given the recall crisis, the Japanese earthquake and tsunami, Thai floods, the strong yen and the recession, Toyota and its dealers may wonder when they are going to catch a break.
Carl Swope, Toyota's new dealer advisory council chairman, is sure that the worst is behind Toyota, especially with a swath of new products on the way. He says that the factory-dealer relationship remains strong and that Toyota is ready for a resurgence. Swope, dealer principal of a group of stores in Elizabethtown and Radcliff, Ky., spoke with Staff Reporter Mark Rechtin about what better times will mean for Toyota dealers and what other issues are gaining attention.
How was 2011 for Toyota dealers?
It was a good year. At the beginning of a new year, we are hopeful and optimistic because we are car dealers. Did we meet all our expectations? Not exactly. But a lot of good things happened, given the circumstances.
How are you doing with inventory? Are Toyota's numbers accurate in terms of days supply and how soon you will be back to normal levels?
Their perspective and the dealer's perspective are off. They have been extremely optimistic through the fourth quarter. As we look right now, we're starting to look like getting back to normal.
With the launch of the Camry, in my situation, things looked extremely short while [Toyota's California headquarters in] Torrance was comfortable with how things were recovering. But right now, in January, it's starting to look more like we're used to.
What are the biggest issues Toyota dealers face this year?
Inventory won't be the factor it's been as we look forward. We have a very aggressive marketplace out there and a lot of competition that has risen up over the last couple years that present some viable alternatives to Toyota. So it's important that Toyota and its dealers get more aggressive.
It's going to be about getting back into the marketplace and competing head on.
Have customers, both Toyota loyalists and those new to the brand, pretty much forgotten about the recall crisis?
I haven't heard a customer mention the recall in the last 12 months. I don't think the recall is at the front of customers' minds. Is there something in the back of their minds? Maybe, but it's not anything they are mentioning. It's not on the tip of their tongues. It's not a lingering factor. But it was an obvious sucker punch Toyota took a couple years ago.
What can dealers do about the strong yen-dollar exchange rate?
The exchange rate is a factor that is going to impact any global manufacturer based in Japan. Is it something that comes up in conversation? Not directly. One of the most significant things Toyota has done since the recall crisis is to shift some decision-making to North America. Has that mitigated all the exchange-rate issues? Not really, but Toyota is protecting itself from the issues that have hit us. The centralization and dependence of Tier 2 and 3 suppliers in specific markets -- those things are going to get better because Toyota is giving local markets more autonomy. We're all subject to exchange rates with pricing and incentives, but I think as time goes along, we will become more insulated.
Should Toyota be advertising during the Super Bowl, or is it a waste of money?
Toyota should be in the Super Bowl, but the bigger issue is the ads themselves. Whether we're talking about Super Bowl ads or whatever, dealers want to see ads that connect more emotionally with their buyers. Toyota has done a great job in advertising product and getting the content and value message out there. But the thing most dealers want is to connect more with the consumers. Execution is the important thing.
How much real contact do you dealers have with factory management, including Akio Toyoda?
Bar none, far more than any other brand that I've represented at any time. The most powerful thing Toyota has going for it is the relationship it has with its dealers. It was one of the things that has been underestimated through all these crises. Even before I was a dealer council guy, I knew a lot of guys in Torrance. There were a dozen people I could call as an everyday dealer. And their regions get lots of autonomy at the incentive level, in dealer association advertising. It's a unique brand in that regard.
Are dealers satisfied with Toyota?
Yes. Would we like to have seen things done a little differently over the past couple years? Of course. We can look back and see things that needed to change and still need to change. There may be some dealers who are disgruntled about some things, but they may not be aware of the things that have changed over the past 18 months. But as I talk to dealers, it is still the best brand in the industry.
Despite the natural disasters and recalls, the tough economy and exchange rates, are Toyota dealers profitable?
Oh, yeah. Yes. They are very profitable on the Toyota brand. If there is an issue we are working on, it is profitability of the new-car department.
You can't say, well, I should get rid of Toyota because it's not as profitable as it used to be. Across all brands, dealers are realizing they have to manage the journey. I don't care if it's Toyota or another brand, we don't make much profit on the new-car sale. But once the guy leaves with a new car, we manage that customer's journey and make sure he comes back to us.
It's getting more difficult to be very profitable in new car and to forget the rest. We may not be as profitable as we used to be, but we need to be working more on owner loyalty.
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?
This is a touchy subject. More than any other brand, Toyota has total transparency in all their incentives. That makes it difficult for a dealer to compete against brands that aren't nearly so transparent. Maybe this is not so much speaking to margin in their pricing, but maybe it is in the transaction margin with how we administer factory-to-dealer incentives. The margin on new cars is so thin, and we are so transparent on invoice and money behind the line, and also the incentive money. It's not so much about hiding it from the consumer, but protecting the transaction price.
So what sort of factory-to-dealer incentives would you like to see?
Stair-steps aren't the way to go because it pits dealer against dealer. But it's also not to put all the money into the consumer's pocket before they even consider the model, where they know it's a given price with the incentive, and even after that, then they consider if they want a Camry or not. It eliminates dealer versus dealer competition. But there needs to be a different kind of factory-to-dealer incentive.
What is Toyota doing with customer-retention programs?
It's a stroke of genius. No other brand I have has done what they've done with Toyota Care [service program]. It is very powerful. The devil is in the details, and Toyota is working on loyalty and how we measure it going forward. Assuring the customer returns through the first couple years and gets into that habit is a powerful thing. But it's a hard thing to market. Hyundai has done a wonderful thing with Assurance, but the actual value of Toyota Care is huge. It's a big factor on the showroom floor when the customer is making the decision.
What's missing in the product lineup?
That's been one of my key issues, even when I was just Joe Dealer. We need something that is a male, emotional model -- something that attracts the consumer who will come in to the showroom floor and look at a Mustang 500GT and drive out in a V-6. We don't have anything in the Toyota brand that does that. We have the Scion FR-S coming, but we don't have anything in the Toyota brand that appeals to the male emotion. We're missing our Celica.
Can Toyota ever really succeed in full-sized pickups, or is the Tundra doomed to never truly compete against Detroit?
I was really encouraged at our dealer council meeting in the fall. There appears to be a new focus on trucks. The executives were talking about plans for the next-generation Tundra. We can compete in the core of the pickup truck market, much more so than we were talking about a year ago.
Are you worried that Toyota might dilute the Prius brand with too many variants?
I've been encouraged in the direction they've taken. When Prius was introduced, they were the only game in town. Everyone else has hybrids in their standard models now. But Prius V [wagon] has done very well. I think the Prius C [subcompact] will be a winner. I like the strategy.
Has Toyota let Scion lose its way? Why are sales so lousy?
Without a doubt, Toyota needs to either be all-in or all-out with Scion. I think they've decided to be all-in. I think a lot has yet to be revealed. I sense that they are very committed to the brand, but we can't see it at the dealer level yet.
The Scion brand does bring in to the Toyota family a much younger buyer. Some might say if the Toyota brand had those products, we'd attract those younger buyers anyway. For Scion to be viable, they have to get out of the 40,000 to 50,000 volume level, and that's going to take some product beyond the niche cars.
Does the certified pre-owned program work for dealers?
It does a lot to hold up the trade-in value of the car, and that filters into residuals at some level. Toyota administers the best pre-owned program that I know of.
What are Toyota dealers doing to attract more service business? Is the factory helping?
Toyota Care has been a big boost to what dealers have wanted to do for a long time. As part of managing the journey, we make sure when the new-car buyers leave, they have a scheduled appointment when they are coming back. It's like getting your next appointment at the dentist when you still have the drool rag on. I can walk through the service department and say, "Drool rag," and the guys know what I mean.
What are Toyota dealers doing to attract more F&I business?
I do represent a lot of other brands. I grew up the son of a Chrysler dealer. Toyota wasn't my first dealership. But Toyota Financial Services is a tremendous partner. If we finance outside of TFS, it's a rarity. They buy strong, fund well, incentivize over and above what Toyota Motor Sales does for us. They are a compelling partner in the whole picture, both new and used.
How difficult is it to get Toyota customers financed since Toyota Financial Services has pretty high standards for applicants?
Every lender is going to look at their relationship, but the one thing we do with TFS, more than with any other lender, is rehash deals. That's almost a thing of the past with some lenders, when you get a C or D guy in there. TFS will look at the relationship. And while they will stay within standards, they will take a look.
What customer incentive programs bring the best results?
Our market is constantly changing, and Toyota has changed, too. I think TMS would like to take more control from California. If I had any guidance for them, it is that in my region of Cincinnati we are big on leasing in the northern parts, but when you get down to Nashville and Knoxville, they don't lease. So when they leave the autonomy to the regional offices, it's a powerful tool.
What are dealers thinking about the "Image USA II" facilities program?
I still have an "Image I" store. But we are in the final design phase for Image II. I think they are really looking at the representation their dealer gives in the marketplace, especially through the recession, and whether the store is appropriate for the brand. When you look at the Image II program, several dynamics are at play. They were very aggressive; they wanted Image II to be done by everyone, pretty quickly. They have appropriately backed off through the recession.
But many Toyota dealers have gone way beyond anything Toyota has demanded. We're all egotists, and some dealers overbuilt who now wish they hadn't.
Is Image II expensive? Yes. Could it be less expensive? Yes, but Toyota has been reasonable about the standards. I wish they would address the core costs of Image II, and the [dealership entrance] portal is the poster child of something that could be done less expensively than the vendor they selected.
Should Toyota do more Web-based marketing? Is Toyota doing enough on the social media front?
Toyota is very concerned about social media, especially when trying to figure out where they invest their money. One concern is that dealers at the Tier 2 level have been way ahead of Torrance in doing interactive marketing with our ad associations. We have been very effective with interactive media here. So anytime the factory says, "We have a better way to do that," they are going to get a reaction from the dealers. But we all want Toyota to be more involved. How they do it is something we're going to work out.
Where do you stand on TrueCar and other third-party transaction services?
There's the issue of how our transactional data is being used in the secondary market. The dealers are suddenly becoming aware of something they should have been all along. All this data we give up freely, in some cases we pay for third parties to take it, and it can be used to our detriment. This issue has gone from a vapor to a solid. TrueCar has just brought it to light.
[TrueCar CEO Scott] Painter says they're not using dealer data to drive prices, that they're using 30 other sources. But we're giving our data every day to hundreds of vendors who rightfully repackage and anonymize it. It's not illegal or immoral, what they are doing. They protect the personal information. But that's not what's driving these vendors. It's the aggregation and summarization of data that in some cases is helpful, but in others it's detrimental.
There's a farming analogy I like to use: If you fertilize your field for a better yield, you might contaminate your well and the wells of everyone around you. Our data is being used in ways we never intended when we signed up for it.