Toyota's growth: Not Calif.
The plan: Focus on East Coast, Northwest, Rocky Mountains
Mark Rechtin | Automotive News / March 19, 2007 - 1:00 am
LOS ANGELES - Toyota's California market share might be maxing out, and its prospects in the truck-happy heartland are still iffy. So how will the brand keep growing at a torrid pace?
Toyota is betting on the Northwest, the Eastern Seaboard, the Rocky Mountains and some big cities in the Southeast - areas in which it already does well but hasn't gone through the roof.
And, despite an ambitious growth plan of 5 to 7 percent annually, Toyota is sticking to its philosophy of not adding dealerships. So the key to growing in those regions is to upgrade existing stores.
"Those areas have the highest opportunity for growth," says Jim Lentz, executive vice president of Toyota Motor Sales U.S.A. Inc. He expects the next-tier metropolitan markets to grow at the rapid rate Toyota has achieved in California in recent years.
In terms of share, nine of Toyota and Scion's top 10 metropolitan markets in 2006 were in California. Binghamton, N.Y., was the exception.
Lentz says the next tier is led by Boston, at more than 20 percent share; Portland, Ore., which approaches 20 percent; Washington and several southeastern cities, at around 16 percent; and Denver, at about 14 percent.
Nationwide, Toyota and Scion's market share last year was 13.4 percent.
"With high market share, you have high familiarity and dealer return on investment, and that means potential growth," Lentz says.
Four years ago, most of the big California markets had the same penetration that Portland and Boston have today. They have grown sharply since then.
In San Gabriel, Calif., home of the colossal Longo Toyota dealership, the Toyota brand has grown from 19.3 percent market share in 2001 to 27.6 percent last year. Many other California areas have shown similar upswings. Now Lentz is aiming at the next group of markets.
The average Toyota dealer in California sells 3,500 new vehicles a year, Lentz says. Nationally, Toyota sales per franchise averaged about 1,700 units in 2006. By contrast, the average Ford franchise sold 645 vehicles last year.
In many areas of the state, Toyota dealers say they are at capacity in terms of inventory and service space.
Uptown/downtown
Toyota-Scion’s best and worst metro markets in 2006
MARKET SHARE
San Gabriel, Calif. 27.60%
San Fernando, Calif. 26.60%
Youngstown, Ohio 4.20%
Detroit 2.50%
Source: Toyota Motor Sales U.S.A.
Steve Cornelius, a Toyota-Scion dealer in San Jose, Calif., says a large metro dealer can get only so big. Cornelius sold 7,000 new and used vehicles from a 5½-acre Toyota store in 2006. But he thinks he needs to build a larger store with more on-site parking and service bays to handle the increased customer traffic.
Given the cost of land in Silicon Valley, that expansion is a costly challenge. He'll do it, but he probably won't get started for a year or two.
"Toyota is going to grow," Cornelius says. "But where? Many of the urban areas are already built out. So the only expansion is further away from the metro."
New store, bigger allocation
To fuel growth, Toyota is giving incentives to dealers to build larger stores under its Image USA II architectural plan. The incentive is an increased allocation of hot models, such as Priuses, Camrys and FJ Cruisers. Toyota Division expects all dealers to renovate their showrooms by 2010 under Image USA II.
The Portland region includes Alaska, Washington, Oregon, Idaho and Montana. Of its 73 Toyota dealers last year, 63 had completed upgrades under Image USA II. The Portland region was Toyota's fastest-growing in 2006, with a 22 percent sales gain.
"The conversations with dealers regarding expansion are easy," says Clyde Dyson Jr., general manager of the Portland region. "They understand the future."
Michael's Toyota-Scion, of Bellevue, Wash., completed its move to a new building in July. After a flat first half of 2006 in the old store, the dealership saw 2006 full-year sales shoot up 31 percent to 3,555 units.
"It was a monster year for growth," says Erik Paulson, Michael's general manager. "We were tapped out in terms of space before. Putting more vehicles in the pipeline made a big difference."
Where Toyota rules, and doesn't Toyota’s Top 10 metro markets in 2006, by market share Share
San Gabriel, Calif. 27.60%
San Fernando, Calif. 26.6
Oakland, Calif. 26.3
San Jose, Calif. 26.1
Binghamton, N.Y. 25.6
Inland Empire, Calif. 25.3
North San Diego, Calif. 24.8
Orange County, Calif. 24.5
L.A. South Bay, Calif. 24.1
Sacramento, Calif. 23.6
Bottom 10 metro MARKETS in 2006, by market share Share
Corpus Christi, Texas 9.70%
El Paso, Texas 9.5
Pittsburgh 9.1
Dayton, Ohio 8.9
Omaha, Neb. 8.8
Grand Rapids, Mich. 7.8
Rio Grande Valley, Texas 7.6
Toledo, Ohio 7.6
Youngstown, Ohio 4.2
Detroit 2.5
Source: Toyota
Nationwide, Toyota Division polled 100 dealers who had upgraded their stores. Those stores reported sales growth of 26 percent, says Rick LoFaso, national manager of market planning and facilities. Nationwide, Toyota sales were up about 14 percent.
"In major metros like L.A. and New York, land is more expensive, and we have to look toward alternatives to expansion," LoFaso says.
Toyota generally doesn't do as well in areas with large union membership or a Detroit 3 manufacturing presence. It also struggles in areas where sales of full-sized pickups are strong.
Playing in Peoria
Not that Toyota writes off such regions; it is making inroads even where domestic brands are strong. In Detroit 3 strongholds such as Peoria, Ill.; Grand Rapids, Mich.; Corpus Christi, Texas; and Gary, Ind., previously moribund Toyota market share doubled in the past five years to nearly double-digit levels.
Most markets in which Toyota lags are big on full-sized pickups. For example, the Chicago region has nine major metro markets. Toyota has car market share leadership in five of them but almost no full-sized truck presence.
Still, Lentz says he thinks Toyota is making gains in those domestic bastions, with help from Image USA II makeovers.
"I went to a dealership grand opening in Pennsylvania, to a store that had been there for 20 years but now is a lot more visible," he says. "People were coming in to the dealership saying, 'I didn't even know you guys were here.' "