AutoExtremist: Rant-5/18/2005

[nadepalma]

http://www.autoextremist.com/page2.shtml#Rant

Rants by Peter DeLorenzo

Don't be misled by the Green Fog of Toyota's intentions. It's all part of The Plan.

Detroit. Toyota didn't become the most successful automaker in the world by being ploddingly conservative all of the time. After all, they took a flyer on the youth market with Scion and to a large degree succeeded nicely, even though the uncool, older demographic bought more than their fair share of the cars. And now, after slowly building up their hybrid capability for the U.S. market, they're jumping in with both feet in a big way. Toyota announced yesterday that the company's first North American gas-electric hybrid production will take place at its Georgetown, Ky., plant - when production of a Camry hybrid begins in late 2006.

Toyota says they will be able to build approximately 48,000 Camry hybrid vehicles per year at the plant - which is its largest manufacturing facility in North America - requiring an additional $10 million investment in the plant. Toyota already builds the Avalon, Camry and Solara at the plant, which has the capacity to build 500,000 vehicles annually.

The hybrid version of the Camry will join Toyota's burgeoning hybrid lineup, which includes the Prius and the Lexus RX 400h luxury hybrid SUV that reached dealerships last month. In June, the Toyota Highlander Hybrid mid-size SUV will hit dealerships, and the 2007 Lexus GS 450h hybrid luxury sedan is slated to be available in the spring of 2006. The Camry hybrid will follow six to eight months later.

Toyota definitely has a plan with its hybrid strategy, but then again, they always have a plan. They didn't get to this point by falling into it, that's for sure. They sweat the details, they're obsessed with delivering a quality product, they listen to their customers, and because of it they've built a war chest that dwarfs that of every other company in the automotive world. Add to this the fact that they have probably the finest group of dealers working on their behalf - and you have a dominant, winning formula.

Jim Press, Toyota's chief in the U.S. said yesterday that "The continued success of Prius has demonstrated consumers' growing demand for hybrid vehicles. Hybrid production in the U.S. will allow us to be even more responsive to the desires of our customers."

As I've said recently, that's a nice, glowing, "we listen to our customers" PR-flavored stance to take, but the reality is much more complex than that. Toyota in fact has two fundamental reasons behind its strategic hybrid plan.

First of all, beyond embracing the political statement crowd in Hollywood and the intermittent environmental crowd (you know, the people who are passionate environmental advocates when it's convenient to their lifestyle), Toyota is forging its benevolent, "aw, shucks, we're just trying to do the right thing for the planet" persona - via its hybrids - for the benefit of the legislators in Congress.

Even though (according to statistics provided by Toyota) by 2006 the Japanese giant will have the annual capacity to build 1.66 million cars and trucks, 1.44 million engines and 600,000 automatic transmissions in North America. And its direct investment in this country is nearly $16.6 billion, with annual purchasing of parts, materials, goods and services from North American suppliers totaling nearly $25 billion, Toyota executives in Japan still want to be sure that all of their bases are covered.

As a matter of fact, there's much handwringing going on back at Toyota headquarters about which way the political winds are blowing here in the U.S. They're obsessed with worry that somehow the idea of protectionism will rear its ugly head again in certain quarters of Congress and that they will bear the brunt of the backlash. Given Toyota's now inexorable link to local economies across the U.S., however, I don't see that as ever being a problem again.

The second and most important part of Toyota's strategic hybrid plan is that they're exploiting a marketing opportunity, pure and simple. They can couch it in all the Mr. Green Jeans blather they care to generate, but at the end of the day, they're glossing over the true, long-term costs of hybrid ownership to consumers in order to gain more market share in the U.S. Toyota is, in fact, only selectively listening to their customers, which is an interesting detour from their usual mantra for success. Consumers have been brainwashed (thanks to a masterful PR snow job by Toyota) to think that hybrids are somehow the "Magic Bullet" and The Answer and that by owning and driving one they will not only save money, but they will do their share for the environment too. We know this to be true from our own Autoextremist Research study about hybrids. In fact, some consumers told us that hybrids were fuel-cell vehicles, the misinformation about the technology is so prevalent.

Toyota can afford to take a big-time flyer at the hybrid market - simply because they have more resources available to them than any other car company. But while doing so, Toyota is deftly side-stepping the real, serious issues about hybrid ownership - the questionable real-world mileage, the long-term out-of-warranty costs due to battery replacement and other component costs and the absolute necessity for an aftermarket warranty on used hybrids, not to mention the added initial price premium - in order to be able to continue to burnish its Jolly Green Giant image into the hearts and minds of American consumers.

And Toyota would like all of this to continue indefinitely. They'd like to see their competitors appear to be out to lunch on hybrids, so that they can come off as the only socially conscious car company in the U.S. market. They'd also like to see their competitors bend over backward to "catch up" on hybrids, too, just as they get set to open their brand-new truck plant south of San Antonio, Tex. So, while their competitors flounder in Toyota's hybrid backwash, Toyota can finally mount an all-out attack on the last bastion of Detroit's crumbling empire - the full-size pickup truck market. Something they've coveted for years.

Toyota's phenomenal success allows them to blanket the market and account for any and every contingency/opportunity - and they certainly deserve the accolades for their savvy performance. But don't be misled by the Green Fog of Toyota's intentions. They're out to conquer the world any way they can, and they will adapt to and exploit any segment they feel they can succeed in.

This year, it's hybrids. Late next year, when their new truck plant comes on line, it will be the truck market.

It's all part of The Plan.

Thanks for listening, see you next Wednesday.