Model of Efficiency : Toyota Guns for U.S. Sales With Cheaper-to-Make Camry
For years, Big Three auto executives openly worried about cost-cutting efforts by Toyota Motor Co. As the yen’s value rose against the dollar, the rumors flew that the already-lean Toyota was getting leaner.
The speculation was right. The proof is now on display--to the Big Three’s dismay--in the 1997 Camry, a fourth-generation mid-size family sedan that goes on sale today in dealer showrooms nationwide.
Not only is the Camry priced lower--by $280 to $1,745, depending on the model and equipment--but to most trained eyes it is also an improvement over its predecessor, with more features, power and refinements.
As such, some see the Camry as the leading edge of a newly competitive Japan as that nation emerges from a recession that sent many of its top companies back to the drawing boards. Now they are poised to exploit both their own heightened efficiency and a more advantageous dollar-yen relationship.
“The Camry represents the beginning of a trend,” said Chris Cedergren, a California-based auto industry forecaster. “We will be seeing price cuts in the future that are even more dramatic.”
This is sure to intensify competition in the U.S. auto market, with the Japanese positioned to regain some of the market share they lost in the early 1990s, when a strong yen pushed their prices higher.
The Camry, Toyota’s mainstay since its introduction in 1983, is already a strong player in the mid-size market, the largest and most important. And despite the car’s ordinary styling, some auto reviewers are so impressed with the 1997 model that they are predicting it could push the nameplate past Ford’s Taurus and Honda’s Accord for the title of No. 1-selling car in America as early as this year.
Toyota executives are more coy about their ambitions, but they clearly relish the speculation.
“Is it in the realm of possibilities that Camry can be No. 1? Yes, but that is not our target,” said Don Esmond, a vice president for Toyota Motor Sales USA.
Taurus supplanted the Accord in 1992 as No. 1, but so far this year the Accord is maintaining a narrow lead. Camry is a close third. Toyota projects sales of about 340,000 Camrys this calendar year--possibly more in 1997. Through August, before the new model’s release, Toyota had sold 248,437 Camrys, just 1,775 shy of Taurus and 3,184 behind Accord.
In California, Camry is the third-best-selling vehicle behind Honda’s Civic and Accord.
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The Camry’s latest make-over has broad implications for the U.S. auto industry. The vehicle, conceived in an era of severe currency pressures, represents a new paradigm of Japanese efficiency and competitiveness.
When Toyota sat down to design the latest Camry, it was facing a prolonged economic slump in its home market and a strengthening yen that was putting it at a substantial retail price disadvantage--as much as $2,000 per car in the United States.
Much as Detroit has been doing for years, Toyota--traditionally the “chinning bar” for other world auto makers measuring their efficiency--set about cutting its costs even further. The goal was to be able to make money even if the yen went below the range of 85 to 90 per dollar, analysts said. Indeed, at one point, the yen hit 79 to the dollar before recovering to the current level of about 110.
Toyota executives claim that the currency fluctuations are less important than in the past since 80% of the Camrys they sell here are assembled in Georgetown, Ky., and with 75% local content, including labor. Analysts, however, say the yen’s value is still an important factor for Toyota’s U.S. profitability.
Toyota won’t reveal how much costs have been reduced for the new Camry, but analysts estimate it costs the company $2,500 to $3,000 less to build this version than the previous one. So even with lower prices, its profit margin increases sharply.
Steve Kosowski, an analyst for AutoPacific Group in Santa Ana, estimates that Toyota barely broke even on the 1992-96 Camrys but will earn $1,500 to $2,000 on the new model. The vehicle retails for $16,398 to $24,018.
The cost cutting took various forms. Working with designers and engineers both in Japan and the United States, the company made significant changes to make the vehicle easier to develop and produce.
Kosaku Yamada, chief engineer on the Camry, said the front bumper, for example, was redesigned to use seven fewer parts than the bumper on the ’96 version.
“Not only does it cost less to produce,” Yamada said, “but it’s lighter in weight, provides better safety protection and is less expensive to replace in case of an accident.”
The company also reduced production costs by eliminating the coupe and station wagon, which together accounted for just 7.5% of total Camry sales.
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At the same time, Toyota took steps to “de-content” the vehicle--that is, reduce the number of parts or components that can’t be seen, lowering costs and simplifying assembly without hurting quality or performance.
For example, the new Camry uses 24 fewer door fasteners. And the clips are painted rather than coated with zinc or chrome. This saves $2.40 in material cost per vehicle and makes the car easier to put together.
“They have reduced the costs where customers can’t see it, without affecting the quality and fit or finish,” Kosowski said.
Not everyone is a fan of the new Camry. Anita and Paul Lienert, a husband-wife team who write product reviews for the Detroit News and other publications, say the Camry was “dumbed down” by Toyota because it was considered too good for the pedestrian family-sedan category.
“The Camry is still a very good car, but it’s not as good as it used to be,” Anita Lienert said. “They’ve cheapened the Camry.”
Her husband objects to the use of plastic instead of metal for some interior parts and to lackluster styling.
But the Lienerts are clearly in the minority. Most magazines for auto buffs have gushed about the new Camry, saying it sets another benchmark that will be hard for competitors to match.
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“I don’t see this as a step backward, but a refinement,” Matt DeLorenzo, editor of AutoWeek magazine, said after test-driving the Camry last week. “It is still the best in the mid-size segment.”
If Toyota is to grab a larger portion of the mid-size market, something has to give. The Big Three, especially Ford, are most vulnerable.
Ford’s Taurus has been the best-selling car for the last three years. But the sedan, which was redesigned for 1996, has been a hard sell because of its higher price and an oval shape that some consider radical.
Though it’s been on the market just a year, the Taurus is already carrying rebates of up to $1,500. In February, Ford also began offering a stripped-down G-model that retails for about $18,000.
Ford Chairman Alex Trotman last week acknowledged concern over the renewed assault from Japan.
He noted that the weaker yen has allowed Toyota and Honda to price their vehicles lower.
“As the yen gets weaker and weaker, the threat to us gets worse,” Trotman said. “It makes life tougher for us.”
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Lean and Leaner
The 1997 Toyota Camry is touted as the leading edge of Japan’s renewed competitiveness. Analysts figure it costs Toyota $2,500 to $3,000 less to build the new Camry compared with the old one, enabling it to cut retail prices and still sharply boost its per-car profit. Where some savings come from:
Lighting: Simpler headlamps need fewer parts. Running lamps moved to front fender for easier assembly.
Anti-lock brakes: 50% smaller and lighter
Sunroof: Source shifted to U.S.
Front seats: Fewer, simpler seat types; up to $400 in savings per car
Bumpers: Fewer parts and fasteners; takes two to four fewer assembly workers; crash rating doubled to 5 mph
Wiring harness: Simplified, fewer connectors; up to $100 in savings per car
Carpeting: Single grade offered
Fasteners: Six fewer fasteners per door, painted instead of metal-plated; number of fasteners reduced throughout car
Fuel lines: New fuel routing system that requires fewer lines
Air bags: One sensor instead of three
Tough Competition
Some auto critics are so impressed with the 1997 model of the Toyota Camry that they are predicting it could outsell the Honda Accord and Ford Taurus this year or next. Monthly 1996 U.S. sales in thousands of cars (for August 1996):
Toyota Camry: 38.9
Ford Taurus: 25.6
Honda Accord: 35.9
Sources: Automotive Industries, Ward’s magazines
