To cash in on SUV boom, Toyota to drop some models, reshape US line-up

Toyota Yaris
Toyota Motor Corp. may drop some underperforming models in the US, its head of North American operations said.

“We are taking a hard look at all the segments we compete in, to make sure we are competing in profitable segments and that products that we sell have strategic value to the brand,” Jim Lentz said Tuesday.

Models under the microscope include fuel-sipping cars that have lost out to sport-utility vehicles, Lentz said-such as the subcompact Yaris, whose US sales have plummeted this year. 

Also, Toyota could sell fewer variants of the Prius hybrid in the US, he said, and scale back niche products like sports coupes and convertibles. “Maybe you need one of those, but maybe you don’t need two of them,” Lentz said.

The shift in US tastes isn’t all that is driving Lentz: There’s also Toyota’s goal of an 8 per cent operating margin in North America by the year ending in March 2021. 

A Toyota spokesman declined to specify the current figure, but indicated the target may be difficult to reach.

Chief Executive Akio Toyoda wants to boost the profitability of Toyota’s traditional business to allow investment in new technologies. Leading the cost-cutting charge is Chief Financial Officer Koji Kobayashi, whom Mr. Toyoda brought from supplier Denso Corp.

Kobayashi has pushed white-collar workers to find ways to save money, including searching desk drawers for extra pens and pencils. That netted quite a haul, he said: “We might not have to buy new pencils for five years.”

On Tuesday, Toyota said operating profit in the July-September quarter was up nearly 11 per cent from a year earlier, to ¥579 billion ($5.1 billion). Unit sales in the US fell, but more of the vehicles were higher-margin trucks and SUVs: In the first 10 months of the year they accounted for around 63 per cent of US unit sales, up from 58 per cent last year.

Fiat Chrysler Automobiles NV killed several sedan models to make room for truck production, and has seen its profit margin in the US surge as a result. Ford Motor Co. plans to abandon sedans almost entirely in the US.

Lentz said, “I think it’s a mistake to pull out of the passenger-car business,” but he said some individual models were under review.

US sales of the $15,000 Yaris hatchback were down nearly 80 per cent in the first 10 months of the year, and US sales of the Prius C, a smaller version of the Prius hybrid vehicle, were down over 30 per cent. Toyota has already stopped selling the larger Prius V in the US.

Lentz said he wants customers to think of hybrid technology-which combines an electric motor with a gasoline engine-as available in many models, not just those sold under the Prius name. 

Toyota hopes to increase hybrids’ share of its US sales to 15 per cent by 2020, from around 9 per cent today, by expanding sales of hybrid versions of popular models such as the RAV4 and Highlander SUVs.

Hybrids account for about 3.5 per cent of overall US sales.

The Prius has established the technology as synonymous with economy, Lentz said. Toyota wants to broaden that.
“We’re going to have to rebrand hybrid,” he said, “to make sure people understand that it can be economical, but it can also be fun to drive.”

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