Page 55 - Toyota Under Fire

TOYOT A UNDER FIRE

that filling up the 20-gallon or larger tanks of large vehicles cost
many people more than $100, a high enough threshold to make
Americans question whether big was really better. Understand-
ably, the sales of those large vehicles all but came to a halt. It was
a shock to the American automobile industry similar to the 1973
oil embargo that opened the U.S. market significantly to small
cars from Toyota and other Japanese manufacturers.
But now Toyota wasn’t a small and scrappy challenger look-
ing for a foothold in the U.S. market. It was the leading maker
of automobiles in the world, and it had gained significant mar-
ket share in the United States selling the large minivans, SUVs,
and trucks that many Americans craved. So when sales of large,
highly profitable vehicles like Tundra trucks and Sequoia SUVs
inevitably plummeted, it hurt Toyota.
But unlike the “Detroit Three” (GM, Ford, and Chrysler),
who relied almost entirely on their large vehicles for their prof-
its, Toyota had significant buffers: its small, fuel-efficient vehi-
cles, like the Corolla, Prius, Yaris, and RAV4, were profitable and
would benefit from a shift in demand. So while its margins de-
creased, Toyota could operate at a global profit even with mini-
mal sales of trucks and SUVs in the United States. That’s one
of the reasons why the company ensured not only that it could
make small cars at a profit, but that via continuous improvement,
profitability was stable or increasing over time. So while Detroit
went into full panic mode during the summer of 2008, Toyota
simply looked to adjust the mix of vehicles being produced, bal-
ancing supply and demand, and pressed on.
But then the bottom really fell out of the market in a way
that Toyota did not anticipate. By the fall of 2008, there was no
doubt that a major global recession was under way. Credit mar-
kets seized up—suddenly no loans were available. That’s truly

24