At the same time he points to a “very, very bright” future, Jim Lentz, president of Toyota Motor Sales USA, is in fact squinting in the darkness, as he talks about the official unveiling of Toyota’s new Scion IQ concept car, which will begin in just a few moments, at the New York International Auto Show on Wednesday.
It’s a metaphor for the industry as a whole. On one hand, Lentz runs the largest arm of the largest auto maker in the world, one that pushed past General Motors last year to become the biggest-selling car maker in America. The product he’s unveiling, the pint-size IQ, is designed for the future domination, with appeal to the surging number of car buyers who live in dense, congested cities like Tokyo or New York (though Lentz hasn’t yet decided when or if to launch the IQ in the U.S.).
As U.S. fuel prices were soaring to record levels, Toyota sold 22,000 Priuses a month, and dealers had less than a day’s supply on hand. Since the beginning of the year, volumes have fallen, with the GDP and the price of gas, to 6,000.
On the other hand, Lentz admits to spending a lot of time worrying and looking over his shoulder. As with his Detroit competitors, Toyota’s U.S. sales have plunged—some 45 percent—and last year’s massive corporate earnings are expected to turn into a loss of at least $4 billion when final figures are tallied for the fiscal year that ended March 31.
“If you look at the recessions of the ‘70s, ‘80s, and ‘90s, they’ve all seen a peak-to-trough decline in sales of 20 to 25 percent,” the boyish-looking Lentz tells me. “And until last year, that’s about what we expected this time.” The 45 percent drop, he contends, “was impossible for anyone to forecast.’
Equally impossible to see was the sharp slump in demand for the auto maker’s Prius hybrid-electric vehicle. Last June, as U.S. fuel prices were soaring to record levels, Toyota sold more than 22,000, and dealers had less than a day’s supply on hand—the norm being closer to 60 days' supply in the auto industry. Since the beginning of the year, however, volumes have fallen, with the GDP and the price of gas, to around 6,000 a month. Toyota has put on hold plans to launch a new plant in Mississippi dedicated to Prius production.
With the upcoming debut of the third-generation Prius, Lentz is forecasting a turnaround, especially because, he insists, “the trend in fuel prices is up, not down, so having a new Prius will expand overall demand. We’re still bullish.”
The heart of his argument: pent-up demand. Specifically, American consumers, who were buying 17 million new cars and trucks a year during the recent boom, aren’t buying new cars and trucks now, and thus will need to catch up later. Much later, actually: “We see a trendline of 15 to 16 million by 2014 or ’15.” Analysts like Joe Phillippi, of AutoTrends consulting, say Lentz’s timeline is actually wildly optimistic. One big problem: Increased quality means people don’t automatically dump them like a disposable razor.
In the near-term, Lentz is taking aggressive steps to prevent the continuing losses that have crippled its Big Three American rivals. There’s the indefinite delay in the Mississippi plant, for one thing. Elsewhere, adds Lentz, “You cut from two [assembly] lines to one, reduce the number of hours everyone works from 80, over two weeks, to 72, you freeze hiring, and you freeze executive bonuses. We’re taking the view of shared sacrifices.”
Part of Toyota’s success has been its ability to recognize possible trends and move proactively. It introduced the world’s first hybrid, the Prius, effectively positioning itself as the greenest of makers—even though it has also made significant forays into light trucks, in recent years, and seen its overall U.S. fue-economy average decline.
The IQ could help Toyota stay ahead of the competition once again, says Lentz. But it requires completely rethinking what his company is and does. “As we see urbanization continue, along with traffic congestion, the architecture of cities may change, and the architecture of automobiles may change to something more like the Segway. They won’t be automobiles, but urban transportation devices.” That’s a far-looking vision, and given the awful short-term reality, mostly likely a necessary one.
Paul A. Eisenstein has covered the automotive industry for 30 years. He is founder and editor of TheDetroitBureau.com, an online magazine that serves as the voice of the auto industry.