Toyota’s rivals rush to fill void
With growing public scrutiny over a series of embarrassing recalls, once-loyal Toyota owners and other car buyers are taking a new view of the automaker’s rivals -- especially Ford, Honda and Hyundai -- a trend that may reshape the U.S. auto market for years to come.
In an example of the new head winds Toyota faces, Consumer Reports will announce Tuesday that it will dramatically reduce the number of Toyota models that it recommends as good buys. Toyota, the world’s biggest automaker, had long dominated vehicle recommendations of what many view as the car buyer’s bible.
Such developments, and the congressional hearings looking into safety issues with Toyotas that start Tuesday, are just the beginning of the automaker’s marketing nightmare.
Longer term, it must deal with consumers like Niki Good of Newport Beach, who in a fit of panic over reports of sudden acceleration and other problems sold her Toyota-built Lexus sport utility vehicle back to the dealer and leased a smaller Mercedes-Benz SUV.
“I enjoyed the car, but with the acceleration and braking issues I thought it was a dangerous vehicle to drive,” Good said.
Already, Toyota’s share of the U.S. retail auto market has plunged to 12.1% from 17.5% since its Jan. 21 recall of 2.3 million vehicles in the U.S. for a sticky gas pedal, according to auto information company TrueCar.com.
“We are seeing an inflection point,” not unlike the late-1970s incursion of the U.S. auto market by Japanese companies “and the establishment of the then-factual belief that the Japanese were wildly superior to American products,” said Robert Lutz, vice chairman of General Motors Co.
Toyota said in a statement that though it was “premature to speculate on the impact of market share and sales, Toyota is determined in everything we do to live up to the high standards consumers have come to expect from us . . . 80% of all Toyotas sold in the United States over the past 20 years are still on the road today. This speaks to the customer loyalty Toyota has realized since beginning U.S. sales in 1957.”
The Japanese ascendancy in the retail auto market was starting to lose steam even before Toyota issued about 10 million recall notices worldwide recently, mostly for floor mats that can entrap the gas pedal and for a gas pedal that can stick. It has blamed both problems for causing unintended acceleration.
Lutz described Toyota’s travails as a “collective embarrassment of Japan Inc.” He said it “may rob some of these brands of their social acceptability and coolness.” In its latest recommendations, Consumer Reports noted that Honda’s interior quality and fuel economy performance have declined.
For several years, various third-party quality assessments -- such as Consumer Reports’ recommendations and research firm J.D. Power & Associates’ customer satisfaction surveys -- have shown a steady improvement in the products of Toyota’s rivals. Toyota, Ford Motor Co. and GM’s Chevrolet are virtually tied in J.D. Powers’ latest ratings of initial quality.
Yet competitors have struggled to make headway against Toyota in the U.S. market because of a so-called perception gap: Shoppers consider Toyota the gold standard among the mass producers.
“That perception gap has been cracked,” said James Bell, an analyst at Kelley Blue Book, which tracks consumer preferences. “Shoppers who identify themselves as Toyota owners are looking at other brands, and people who don’t own a Toyota are not considering the automaker.”
A year ago, Consumer Reports recommended 22 of the 25 Toyota products it tested, more than any other manufacturer. This year it recommends 13 of 26 Toyotas.
The magazine is passing on eight of the models caught up the recalls.
By comparison, 13 of 20 Ford models earned Consumer Reports recommendations, 12 of 14 Hondas, 15 of 17 Nissans and five of seven models made by South Korean upstart Hyundai.
Even GM, which does not fare well in the overall ratings with just seven of 26 models recommended, did place two vehicles -- Chevrolet’s Silverado and Traverse -- into Consumer Reports’ roster of Top Picks, the first time in six years a domestic manufacturer has landed two vehicles on the coveted list. Meanwhile, Toyota’s Highlander and RAV4 SUVs dropped off the list.
Because loyalty plays such a big role in auto purchases -- on average about 50% of shoppers buy the same brand they already own -- a shift of a few percentages points in market share between companies can have ripple effects that resonate for years.
That’s why both Ford and GM have targeted Toyota owners with special incentives and discounts if they trade their vehicles in. A 1% change in “conquest sales” translates into a full percentage point change in retail market share, said Mike DiGiovanni, GM’s chief sales analyst.
“This is the biggest long-term worry for Toyota for the moment,” said Jesse Toprak, an analyst at TrueCar.com. “This isn’t just a short-term phenomenon.”
Before the recalls, Toyota had the most loyal owners, with nearly 58% saying they would be repeat customers. That has slid by about seven percentage points to 51%, according to Kelley Blue Book. Since the recalls, Honda has the most loyal customers, growing from 55% to 58% of owners who say they would buy another Honda.
The drop in Toyota loyalty could haunt the company in future quality measures, auto executives said. Consumers are quick to complain about domestic brands in quality surveys, in part because of years of pent-up frustration with their autos. Toyota owners, who have been typically the most intensely loyal, may now be more inclined to report defects.
Honda is the default choice for buyers wedded to the idea that Japanese vehicles are better than rivals from other countries. But Ford and Hyundai are benefiting from both improved quality and a growing lineup of new-generation models, said Bell, the Kelley Blue Book analyst.
Chevrolet’s Equinox small SUV meets or exceeds the Toyota RAV4 in key areas, including fuel economy, style, refinement and design, Bell said. Previously the Toyota would have been the safe purchase if for no other reason than it had a higher resale value. But with prices of used Toyotas taking a hit because of the recalls, “that gap is shrinking,” he said.
One measure of that shrinkage is the estimated “residual” or resale value of a vehicle used to calculate auto lease transactions.
According to the Automotive Lease Guide, which catalogs such values, the residual value of a two-wheel-drive Cadillac SRX at the end of a three-year lease is 51% of its original price, up from 32% a year ago. It has almost entirely closed the gap with its competitor, the Toyota-built Lexus RX-350, which has a residual value of 53%, up from 48% a year ago.
“It is a reshuffling of the deck,” Bell said.