Can Toyota Catch Up to Detroit?

Somebody forgot to tell the automakers -- at least, most of them -- that the economy is supposed to be going downhill. Auto sales in September were up 10% over last year's not-too-shabby numbers, with all three of the Detroit automakers posting solid gains.

Not all of the imports fared as well, however, as Toyota (TM) and Honda (HMC) saw sharp year-over-year declines. That was a bit of a surprise, as both have largely restored their tsunami-ravaged supply and production chains.

But for both companies, especially Toyota, winning back customers may be more of a challenge.

The Bigger They Are, the Harder They Crash

It really was just a couple of years ago that Toyota seemed unstoppable in the U.S. The company's relentless emphasis on production efficiency had yielded a lineup of products that blew away competitors' offerings. Sure, enthusiasts panned them as dull, but "dull" products that were value-priced and yielded 100,000 miles or more of trouble-free, comfortable service were just what millions of Americans wanted.

Toyota's cars and SUVs won comparison after comparison, none more important than those in the pages of the influential Consumer Reports. Meanwhile, the company's Lexus luxury brand was beating the Germans at their own game and making moribund Cadillac look tired and irrelevant.

That was then. Last year's unintended-acceleration scandal didn't destroy Toyota's reputation for quality, but it put a big dent in the company's armor, and sales suffered. And just as the company was starting to put that debacle in its rear-view mirror, the March earthquake and tsunami decimated key suppliers and production facilities, constraining supplies of key vehicles for months.

Now Toyota's production is finally back up to full speed -- or at least close to it. But a return to the company's former position as the no-brainer U.S. market leader is far from a slam dunk.

Post-Tsunami, It's a Different World

Toyota's U.S. sales weren't as strong in September as some had expected, but that's at least partly due to (understandable) snags in the company's plan to resume full production.

As of the end of the month, supplies of popular models were approaching pre-tsunami levels. The company should be able to go full-speed in October. But having the supply doesn't mean the demand will be there.

The problem for Toyota is this: The market has changed.

Sponsored Links

In the past few years, Ford (F) has radically overhauled its global product portfolio, filling its showrooms with competitive, innovative vehicles that are winning lots of new customers. General Motors (GM) still has a ways to go, but it's following Ford's lead, and GM's best products are now good enough to compete with anyone else's. And Chrysler has pulled off a stunning product-line transformation, its shotgun marriage to Italy's Fiat (OTC: FIATY) proving more fruitful than nearly anyone had expected.

Meanwhile, Japanese stalwart Nissan (OTC: NSANY), which escaped the tsunami relatively unscathed, and Korea's Hyundai (OTC: HYMTF) both have superb offerings in the U.S. -- and both, like the Detroit Three, have made big sales gains while Toyota and Honda have suffered.

Put simply, an awful lot of longtime Toyota and Honda loyalists have checked out other brands, maybe for the first time in decades, and they've found some superb cars.

Can Toyota win those folks back? That's the billion-dollar question.

Just Showing Up Won't Be Enough

Toyota remains a tremendously strong company, but it faces a daunting challenge. The company plans heavy marketing and incentives in the near term, which should help win back some market share; but prospects beyond that are very much an open question.

Toyota's products are still pretty good, but just about everybody else has upped their game. Here's just one example: Toyota just introduced an all-new Camry. It's a nice car, an incrementally improved version of last year's edition, and a fine entry in the midsized sedan segment. It's right up there with Ford's excellent Fusion, but Ford's going to introduce an all-new Fusion in January.

The bar is being raised, and for once, Toyota isn't the one raising it.

At the time of publication, Motley Fool contributor John Rosevear owned shares of General Motors and Ford. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor.

Get info on stocks mentioned in this article: