Toyota Announces Sweeping Changes for U.S. Market

Toyota Motor Company has announced a new strategy for increasing sales in the U.S. Japan’s No. 1 automaker says that it intends to be more aggressive with new product launches and to tailor its vehicles to meet the demands of American consumers. Toward that end, the automaker plans to focus more of its North American vehicle research and development within the U.S.

Toyota’s executive vice president in charge of North America and global production, Atsushi Niimi said, “Through this shift in responsibility, we expect the vehicles will more closely reflect the needs of U.S. consumers. We want the R&D team of North America to have a louder voice in what is exported from Japan to their market.”

The announcement comes amid what has been a rollercoaster year for the world’s largest automaker. Toyota has posted both its biggest profit and deepest losses in the last year. In 2008, Toyota posted its first quarterly losses in seven decades and expects to see additional losses by the end of the year. In June, the grandson of the company’s founder took the helm and instituted a thorough overhaul of the company’s global product development architecture. This latest move is seen by many to be an extension of the overhaul.

The U.S. market, which has long been the automaker’s most profitable, was down 28% through this past September. The first quarter of 2009 was also the fourth consecutive quarter in which Toyota’s North America division posted a net operating loss.

Toyota’s sentiment appears to be that desperate times call for desperate measures, and it intends to make sweeping changes to its North American model lineup. Toyota is currently reviewing its pickup truck line as the market for larger, less fuel efficient vehicles has shrunk over the past year. Niimi indicated that the automaker may make significant cuts in its truck division although no specifics were given pending the company’s analysis of the sector.

Toyota will also likely offer more gas-electric hybrid models which have performed well in recent months.

Niimi said, “We need to focus on the hybrid lineup. Maybe we’d be getting into minivans or more compact, smaller-sized vehicles. The company is also considering branding its entire hybrid family with the Prius name in an attempt to ride the wave of success that model has seen in the U.S.

Toyota also intends to forego minor changes to its existing models and to aggressively promote broader changes when they occur. According to Toyota’s executive vice president, Yukitoshi Funo, the strategy will be adhered to even if it means delaying new product and redesign launches. He said, “We are going to have a smaller number of production actions so that each of those has more impact. Instead of cosmetic changes, we may have more fundamental changes, though it may require a little longer time.”

Among the minor changes that may go unnoticed by consumers are mid-cycle facelifts such as minor design changes to vehicle grilles, bumpers, headlamps and interior colors. Funo said, “Rather than bringing it in sooner, compromising the product, we’re going to make sure that the product is dead right.”

According to Niimi, Toyota has fallen victim to a one-size-fits-all mentality which assumed that features that succeeded in the automaker’s home country would succeed in the U.S. He points to GPS navigation systems as a prime example and says that the company made no distinction between systems offered in Japan and the U.S. He claims that, although the highly sophisticated systems fare well with Japanese consumers, U.S. buyers have demonstrated a preference for simpler, less expensive systems.

He also admitted that “Some of the needs of the local American market have not been well-communicated” within the company. To address this problem, Toyota engineers located at the company’s North American R&D facilities will communicate directly with their counterparts in Japan going forward. Niimi said, “It will be engineer-to-engineer talk, so it’s better for communication.”

Toyota also plans to shake up its U.S.-based manufacturing facilities. Only 60% of the vehicles Toyota sells in the U.S. are manufactured at the company’s U.S. facilities. Those facilities currently depend on imported parts and have been squeezed by the recent surge in value of the Japanese yen compared with the dollar. By manufacturing more of its U.S. sales domestically, the company will avoid profit-draining volatility in the exchange rate.

Toyota currently has approximately 20% excess capacity at its North American factories, including next year’s closure of NUMMI, its joint manufacturing venture with GM. Toyota has indicated that until demand increases, no new U.S. factories are being planned. According to Niimi, that includes the Blue Springs, Mississippi Prius plant that has been under consideration.

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