How Is Toyota Weathering the Pandemic? With Ups and Downs
Toyota is building trucks and SUVs as quickly as possible to meet the surprisingly high consumer demand for new vehicles. The Japanese automaker is adapting where it can, such as canceling car rental orders to use its reduced capacity to make as many vehicles as possible for retail customers, said Bob Carter, executive vice president , Automotive operations.
All plants back to work
Wait, isn’t everything dory hunky? Not exactly. The new Toyota Highlander 2020 has been caught in the pandemic stops. “We are ramping up the new Highlander,” he said. “We sold the old one earlier than expected and were ramping up at the Indiana plant when COVID hit and disrupted it. We postponed the launch and only made one wave of marketing and we’ll bring it back later this year now that Indiana is in production. “
The Highlander snafu is a bigger challenge. Toyota resumed manufacturing on May 11, but factories are not operating at full capacity under the new COVID-19 safety protocols, particularly those in Mexico where there are more government barriers to overcome. Workers complete a health questionnaire before going to work, undergo temperature checks, wear masks or face shields, stand farther away, work and eat separated by Plexiglass and have shift work shifts.
In the six weeks since resumption of manufacturing, there have been cases of infection, but they appear to have spread to the community – not contamination from work. There have been breaks in production, but no major shutdowns, said Chris Reynolds, administrative director, manufacturing and resources for the company. And there was no problem getting temporary workers back to work. He hopes that as the restrictions improve, Toyota will be able to meet demand in the coming months.
Best Sales Weekend
On the sales side, Carter said Toyota had just had its best weekend since the start of the pandemic. The market and consumer appetite continue to recover faster than expected, he said in a virtual roundtable with the media.
Until June 15, retail sales reach 85% compared to a year ago and Carter thinks it will remain at this level for the next few months with “irregular sales” for the rest of the month and until July as the supply chain struggles to continue. It’s not just Toyota. The offer will limit sales and create an industry imbalance in June and July until there are enough parts available to build more vehicles. “I think it will stabilize here until the supply chain allows us to get more inventory.”
It has been an interesting race so far. March was the transition month and posted an annual sales pace of 11.3 million with a solid start to the month before the virus turned off the tap and the world largely stopped. The pace of sales reached its lowest point at a rate of 8.6 million in April, but May experienced a surprising increase to 12.2 million, and this rate remains until June 15. Overall, Toyota has revised its 2020 U.S. sales forecast to 13.6 million from the original forecast of 16.8 million.
We need more trucks
Even before the pandemic, vans and SUVs accounted for 70% of sales, a share that has not changed. As a result, Tacoma and Tundra pickups are rare. “I ask Chris to build everything. If he has four wheels, build it,” said Carter.
Demand for Tacoma is particularly strong (it may have something to do with the few incentives Toyota has recently offered to the truck). It is made in Baja, California; San Antonio; and Mexico, each with its own regional supply chain and subject to government directives that have had an impact on production, particularly in Mexico. But Toyota’s two factories in Mexico now operate shift work shifts, said Reynolds.
Overall hybrid sales are up 3.5% despite low gas prices, with the highest demand for the RAV-4 hybrid and initially for the new Highlander until production is halted. Carter credits the addition of more performance and sporty hybrids, rather than just relying on efficiency to attract buyers.
Incentives were high, particularly on luxury vehicles, which reached $ 10,000. But the incentives recede a bit in June, said Carter, noting that offers such as General Motors’ offer of zero percent financing for 84 months are extremely expensive. Toyota offers a more modest 60-month lead time and is currently promoting its hybrids, many of them with zero percent funding.
Waiting and new request
There is some pent-up demand, but also new demand. Almost all 1,500 dealers are open for business with sales appointments required. For the record, dealers in places like New York are getting first-time buyers who have become uncomfortable using public transit, said Carter. Toyota’s website is reaching record levels with people requesting quotes, averaging 4,000 requests per day compared to 2,600 per day in June 2019, as consumers change their buying habits.
The leases are returned to the dealers. Carter said Toyota is sourcing vehicles from regions like New York and transferring large numbers to more robust markets such as Florida and Texas that need more certified used inventory. The sale of these non-rental vehicles is 40% higher than that forecast by Toyota in June. Most are purchased online. Few are those who make it to the auction, he said.
Fleet orders canceled
What is not recovering is the commercial and fleet sales, which represent only 15 to 20% of normal. This represents approximately 20% of total sales. Instead of building base vehicles for car rentals, Toyota has canceled these orders and is shifting production to retail vehicles. Toyota is not a big player in the rental car industry; Carter noting that it represents only 8 to 9% of its sales.
Meanwhile, non-manufacturing employees will continue to work from home until September 1. Carter admits he’s old school; homework had only been attempted on a limited basis and he feared that Toyota would lose the efficiency it is famous for. This was not the case, he reports, admitting that some, including customer call centers, prove to be more efficient than when they entered the office.