Toyota spends to defend its pickup perch

DALLAS — Through a series of delicate production adjustments, Toyota has managed to squeeze more Tacoma midsize pickups out of its plants in Texas and Mexico. But those efforts weren’t enough to fully protect the pickup’s perch atop the rapidly growing segment from an onslaught of competitors.

So last week, Toyota cracked open its checkbook for a $150 million investment at its Tijuana plant that will increase Tacoma production there to 160,000 vehicles annually in 2018 from just over 100,000 it expects to make at the plant this year.

“They probably should have done this awhile ago,” said Dave Sullivan, an analyst at consultancy AutoPacific. “It’s a really unique market because it’s not driven by fleet sales. These are real consumers paying basically MSRP for these trucks.”

Toyota acknowledged last week that it can do better in the pickup market.

“Demand for trucks has grown exponentially,” Toyota Motor North America CEO Jim Lentz said in a statement announcing the Mexico investment. “By leveraging our manufacturing facilities’ availability and expertise, we can be nimbler and better adjust to market needs in a just-in-time manner.”

The midsize pickup market now has more players than it did a few years ago, with the Chevy Colorado, GMC Canyon and Honda Ridgeline all returning after hiatuses. Ford’s Ranger is due to return as well.

Toyota still dominates the segment, and Tacoma sales are up 4 percent this year through August, but its share among midsize pickups has shrunk amid the new competition to 43 percent this year through August, from 51 percent a year earlier.

Toyota’s investment in capacity represents a bet that it can reclaim some of that share and capture more of the segment’s torrid growth — it’s up 21 percent this year — by increasing supply.

But the new capacity may help only so much. For one thing, the added 60,000 units in Tijuana may be offset by adjustments at Toyota’s San Antonio plant, which produces Tacomas and full-size Tundra pickups. San Antonio is running at about 125 percent of capacity, with a costly Saturday shift that could be discontinued.

For another thing, the Tacoma is a different type of product from the vehicles now driving much of the segment’s growth: cushy, smooth-driving pickups that feel like modern SUVs.

With the bouncy ride and handling of a stereotypical pickup, the Tacoma is “very much a truck guy’s truck,” said Sullivan. “They’ve come up with an alternative that works for them, and consumers are willing to pay for it.”

Theoretically, Toyota also could use the Tijuana expansion to free up room in San Antonio to make more Tundras, since the two trucks share an assembly line. U.S. sales of the Tundra are off 7.7 percent this year through August, compared with a 2.8 percent rise for the full-size pickup segment overall.

David Crouch, vice president of administration and production control at the San Antonio factory, said supply is a big reason: Toyota dealers don’t have enough pickup inventory on the lot to tempt shoppers to buy.

Sullivan doesn’t see much market upside for the Tundra, since Toyota can’t keep up with the Detroit 3’s investments in full-size trucks, a segment that pays their bills. The current Tundra is a bit player in the full-size segment, with 5 percent.

But it has key advantages over its competitors, said Mike Sweers, chief engineer for both pickups, including the lowest cost of ownership and the highest residual value in the market, making it a value proposition for buyers.