After five up and down years, Jim Lentz thinks Toyota is right where it’s supposed to be.
Five years ago, the company unseated General Motors as the world’s biggest automaker and its cars dominated much of the U.S. market with a reputation for bulletproof reliability.
Toyota even weathered the Great Recession with relative ease.
Then came a series of embarrassing safety recalls and a devastating 2011 earthquake and tsunami in Japan that shuttered the automaker’s parts suppliers and left it short of cars to sell.
Today, sales have rebounded and Toyota is again making big profits.
Through it all, Lentz has been at the top of Toyota’s organizational chart in America. He was the public face of the company as it recalled millions of cars for sudden acceleration. Now he’s the North American CEO and a senior managing officer. He says U.S. sales are meeting expectations, and he likes Toyota’s position in the market.
That’s not to say there aren’t new challenges.
The company’s bread-and-butter vehicles, the midsize Camry sedan, the Corolla compact and the RAV4 small SUV, are under attack from new models introduced by revived Detroit automakers and newly energized brands from South Korea. And there’s the question of whether younger generations want to buy cars.
In an interview at The Associated Press headquarters in New York, Lentz talked about the economy, Toyota’s position in the U.S. market, young people’s car-buying habits, gas prices, and how the company plans to handle tremendous competition. Below are excerpts, edited for length and clarity:
Q: In August of 2008, your U.S. market share was 16.8 percent. Now you’re around 14.4 percent. To what do you attribute the decline and will you ever get back to where you were?
LENTZ:I think at the bottom, after the tsunami and everything else, our share dropped to 12.8, something like that. We were as high as 17 percent in 2009, in the midst of the financial crisis, when many of our competitors didn’t have access to capital. They couldn’t wholesale cars to dealers, they couldn’t provide retail financing, they got out of the lease business altogether. At the same time we had a spike in fuel prices. So we had a lot of tail winds. So I think we were never as good as 17 percent. I can tell you we’re much better than 12.8. We’re on target to hit our sales plan this year. If the industry comes in at about 15.5 million (annual car and truck sales), our share will be 14.4 to 14.5. So I think we’re in good shape.
Q: Do you attribute some of the drop to more competitive cars in your bread-and-butter markets?
LENTZ: Yes. There are much better cars on the market today than there were five years ago, and compared to 10 years ago, it’s a night-and-day difference. One reason the average age of a car today is 11 years is the quality’s gotten better. Look at the midsize segment. If you go back 15 years, there were really two major players, Accord and Camry. Today there are arguably five or six really good options.
Q: Why do you think the U.S. auto industry has come back as strong as it has? Did the comeback surprise you?
LENTZ: I don’t think it’s a surprise. The industry has historically been driven by low interest rates and (strong) consumer confidence. Today, interest rates are still at historical low levels. Consumer confidence, it’s wobbling its way back up. Part of that’s being driven by housing, which is making its way back. People’s 401(k) statements, for the most part they’ve recovered. So I think they feel relatively confident. On top of that the average age of the vehicle today is over 11 years old. You have a lot of needs-based buyers now.
Q: How long will pent-up demand last?
LENTZ: Probably through 2014. If you look at the total number of cars on the road, it typically averages around 250 million. Of that, the cars that are 1-to-5-years old typically are 82 to 85 million of that. The deep, deep recession the automobile industry went through reduced that number down to about 62 to 65 million. It hasn’t been that low in terms of raw numbers since the early ’80s. Typically a new buyer that’s in the marketplace, if they’re shopping new or used, they’re shopping that certified used 1-to-5-year-old vehicle. Because of the limited supply, the cost of those vehicles is quite high today. On a monthly payment basis it’s almost the same to buy a new vehicle. So in time, as that 1-to-5-year-old base builds its way back up, I think we’re going to reach that equilibrium probably sometime near the end of 2014.
Q: What happens to the market then?
LENTZ: The market then has to work off of a much better economy and improving economy. If we don’t have that I think the market may flatten out.
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