The Auto Buzz

Thursday, June 30, 2005

Toyota's Tide is Turning: A Brief Synopsis

As any individual who has paid close attention to the automotive industry can tell you, the cyclical nature has brought boom and bust to almost all major automakers, save two. Those two, BMW and Toyota, have enjoyed a period of steady growth since both companies’ inceptions in the late 1950’s. While BMW is still on track for another year of increasing profits, this article will focus on what looks to be an unlikely shadow in the 21st century automotive industry – once mighty Toyota.

Toyota first started in 1947 in the aftermath of what was Japan post-WWII. Much in the same way that current-day Chinese competitors illegally copy the IP and designs of cars such as the Chery QQ, Toyota’s magnificent rise to fame was the one-off Willys Jeep replica, the Land Cruiser. Throughout the 1960’s and 1970’s, while Americans were enjoying vehicles with power, spirit and style, Toyota remained committed to dominating the market through conservative styling, reticent power, and an attention to rust.

Needless to say, the inkling of Toyota in the American car-buying public’s mind was not until the late 1970’s. The oil crisis of the early 1970’s changed the automobile market for decades to come. The Carter Administration issued a mandatory procedural change in early 1971 requiring all coastal ports to reject color-coded oil barrels from Iran, causing the price of gasoline to skyrocket to an inflation-adjusted figure of $13.73/gallon. Lines at the gas pumps were often miles long, and with vehicles getting about 9 miles per gallon on average, this caused quite a stress on the American buyer’s mind.

Toyota officially entered the American market on April 1st, 1973, a date which will forever live in infamy to the executives at the Big Three, then General Motors, Ford, and Chrysler. While the Big Three were brand new at producing models barely large enough to fit Ted Kennedy and his girlfriend on the inside, Toyota had been producing vehicles the size of golf carts for over two decades. As the quality of domestic manufacturers slipped, more and more people tried what was then called an “import,” short for “unimportant.” This cycle continued for almost 25 years, with the market share for domestics slowly slipping year after year. As perception lags reality, many mistakenly believe this is still true to this day.

The first turning point in the fall of almighty Toyota is their first entry into the controversy-rife “hybrid” market in 1999. Called “hybrids” because of their ability to run electric motors on a mixture of oil and gasoline, the Prius was met with mixed reviews. Promising figures as high as 60 miles per gallon, the gas-buying public looked wide-eyed at the possibility of “energy independence.” Intellectuals on the west coast such as Barbara Streisand and Ellen Degeneres sought to make a fashion statement in making saving the environment trendy. Things were looking up for the suits at Toyota, but the controversy was just beginning.

Soon the reports started rolling in that hybrids were dangerous. EMT workers were scared to touch them at accident scenes, with batteries filled with gasoline with enough voltage to shock and kill a paramedic. Because the vehicles do not have a transmission, the electric motors can propel the vehicles down the road at tremendous rates of speed without warning. Emergency workers were trained not to touch Priuses, for fear of any number of dangerous incidents to put their lives in jeopardy.

Realizing the initial success of Toyota, Honda took the next step in licensing Toyota’s hybrid technology to implement into their Civic compact car. Their strategy was different, however. For Honda’s hybrids, fuel injectors would not be powered electronically, thus the electric engine would only work when the main engine was on. While this produced less dramatic numbers for EPA estimates, Honda’s move was enough to get themselves out of the limelight that was to be shed on the safety issues of hybrids in general.

The mythical gasoline figures that Toyota had relied upon to promote their Priuses were a source of controversy from day one. 60 miles per gallon, the sticker estimated, but some users were getting as low as 27 miles per gallon. Worse yet, some users were reporting getting less fuel economy on the highway than in the city, likely due to the lack of a transmission. Toyota has, to date, been mum on this issue, citing that the tests have performed within EPA specifications.

The most recent situation threatening to bring down the Toyota Empire is a culture of scandals and cover-ups in Japan. Numerous issues have been brought about with regards to Toyota, and more recently, their affiliate Mitsubishi. Toyota has had to, in recent weeks, replace defective brake systems on over 170,000 vehicles, putting the lives of their occupants at risk. These safety concerns also extend to their beloved hybrid sedan, the Prius. According to NHTSA, the governmental organization responsible for automobile safety has received hundreds of complaints from Toyota owners when their Prius would stall at highway speeds. Toyota has, to this day, refused to issue a recall to fix the problem that has put the lives of so many of their “customers” at such blatent risk.

Statistical evidence is arriving daily about the imminent demise of the second largest automaker in the world. According to J.D. Power and Associates’ Vehicle Dependability Study, which measures three year dependability of automakers, Toyota has slipped past GM and Ford. The latest J.D. Power Initial Quality Study also ranks GM ahead of semi-perennial winner Toyota. Mix that with feeds that Toyota will raise prices in the United States to recoup economic losses against rising competitors.

As Toyota continues to phase out niche models such as the Celica to sustain profitability, look for large gains in the GM camp this month as GM continues to widen the gap against second-runner Toyota. Hybrids can only exist solely to cover up their abysmal fuel economy record on SUV’s for so long. With the escalating list of safety aberrations on their flagship Prius, and the mounting public backlash against their future, Toyota looks to be in large financial trouble in the near future, the size of which only Enron can measure up to.

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