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McBlog: Toyota and the Trials of Job

“All the dealing is over. Everything’s over.”

by on May.13, 2011

Held captive by disbelief we watched on TV that improbable tsunami, dark with disturbed sand, textured with the detritus of people’s lives ranging from children’s plastic sandals to grown-ups’ cars. How could this be? An uncontrollable King Kong nightmare flinging recognizable everyday things across a mundane landscape.

Our brains struggled to wrench some sense from the sight of seaside warehouses and absurdly colored plastic tubs, equally freed of normality, floating off together in a frothing soup in which cars bobbed like Halloween apples. Cars! And inexorably the invading wave rolled ever higher, up concrete stairs step by step where observers certain of their safe perch, were suddenly faced by a frothing mastiff broken free of its chain.

Disbelief. Theirs and ours. How often did we go back to our computers to view it again, stilled stunned.

But did we have any idea how it would disturb the way cars are bought and sold in our own neighborhoods?

The tsunami has slunk back to sea but it has not ended. It is now sweeping a ghostly wave, delayed but no less dismaying, across the lives of those who buy and sell cars in the rest of the world. Dealers in Japanese cars particularly are like those people on the cement stairway, incredulous at the inching reach of the murderous wave and the destructive quake that set it in motion.

It’s simple. People who make their living selling cars cannot make a living without cars to sell. And one by one Japanese car makers have announced delays and reduced production in one after another models. More recently they are telling dealers to expect some 10-20% of the cars they usually wheel off the transporters.

My friend (call him Fred Vang because that’s his name) buys cars for clients who prefer to avoid the discomforts of the dealing ritual or the esoterica of contracts. He told me of a distraught phone call from a simpatico commercial manager at a Toyota dealership (you can call him Al because that’s not his name). Al had provided Fred’s clients the past year with 25 to 30 satisfying deals on cars that pleased them right down to the garage floor. That’s Fred’s purpose in life as he sees it – matching car to buyer in an all-around smile fest. Al has aided that quest for 15 years.

But Al told Fred: “All the dealing is over. Everything’s over.” The sheet listing cars eligible for incentive support was chock full one day, the next day all but blank. Two cars. “Where we used to get 300 cars we will now get 30,” Al told Fred. The two have had a great working relationship just as Fred has with others and a range of dealerships across the country. They have built trust and familiarity. No games to play. No time wasted. Fred could tell Al what a client was hoping for and Al with phone and computer would search the country. Success might depend on some swapping of cars among two or more other dealers – like kids with steelies and aggies at the corner lot. (Or do kids swap marbles anymore?)

A RAV4 V6 with all-wheel drive in a beachy sand color the client liked had just been delivered to a woman in Georgia. Big deal? Yes, because it was likely the only RAV4 in the whole country that color with the other stuff on it the way she wanted. Al had tracked it down, the deal was satisfying and the RAV4 now lives in Atlanta. The last deal of its kind before the tsunami arrived at the showroom door where Al plies his trade. “Tell her how lucky she is,” a dejected Al had said.

At first, shortly after the wave receded, the first far-reaching effect felt in the car world seemed almost amusing. The earth shook under the sea near a distant shore and the result was a car shopper in Kansas couldn’t get his Ford Explorer in the Tuxedo Black he wanted. A few shades of red and some blacks were simply no longer a choice. A small company in the devastated area, the lone source of a component that added a sparkle and depth to those particular paints had been put out of commission.

Globalspeak anyone? Butterfly wings in the forest indeed.

Similar breaks in tangled webs of interdependence followed. Parts that fit in the palm of a hand were made by suppliers. Even suppliers to suppliers. The small plants were in critical areas. And thus the parts they were responsible for were not in time for just-in-time. Damage at the source meant disruption at the line. A tooth in the cog went missing. The assembly process looked like a first grader’s smile.

Shutting down was the only choice until the roads were reconstructed, small factories were repaired and the gaps were filled. By mid-May Tuxedo Black was again available, but some observers said six months was a more likely time span to see production fully recovered from the quake/wave damage.

Al had said there could be no more distant Fred clients relying on emails, phone calls and FedEx. Now anyone looking to buy one of the rare cars must come in, close the door, sit in an office and be fixed with salesman smiles and finance officer frowns. And never mind option boxes – the extras were-pre-selected. Chromed wheels added with the cars barely off the transporter. All of those “rust and dust” specials as the vernacular has it. ADMs, the dealer-added extras, could boost the car’s drive-away cost by $2000 to $6000.

It’s survivor time.

With the dealer getting fewer cars each one must earn a greater share. A dealership that a few weeks before was making it on volume — waving product out the door ASAP with certainty more would be rolling in to keep black ink on the books – had to change operating procedure instantly. Now it would be the gross profit on each unit that mattered. Slow down. Make each one count: Not: “Would you like fries with that?” Instead: “Fries come with that.” If someone in the buyer’s seat says: “But I don’t want fries,” the sales manager opens the office door and calls out “Next”.

The drastic drop in product supply has not shown up equally in all markets. Fred said: “I think it started on the West Coast into the Rockies and has now jumped East. The Midwest may be slower to get it. But it will be world wide.”

Al called Fred again a few days after his first distressed call. An enlightened dealership owner had realized as bad as it was now the transporters would one day again roll freely and they could not find the bridges burned. Al told Fred: “He came in to tell me that you and I have worked together for a long time. We should continue that despite the shortage.”

But everyone else gets chrome wheels.

Fred felt compassion for Al’s plight, knocked off his feet by a wave that had long taken its odd flotsam back to sea. How many others like Al were there like him in Japanese dealerships? What a wrenching change of circumstances for them all.

He also felt a tinge of guilt. He could switch his custom to less affected brands. To American makers, to Japanese cars assembled in the US. Supply depended on models. A Subaru dealer he works with had told him that his supply for incentives had dropped from 250 to 21 cars. Japanese-built Imprezas and vehicles built on that platform – WRX and Forester – were already ranging from hard to find to impossible. Gone for sure are those models with manual transmissions. Easier to come by, for now at least, are the Subarus assembled in the US. Fred said the Legacy could now be had for less than an Impreza.

American cars were back on their financial feet again. And rising in the J.D. Powers approval ranks as well. The reports Fred prepares for his clients to help them in their selections were increasingly favorable to US cars. The American 3 should be able to plant a firmer foot in the market place with their competition crippled by circumstances.

And Korean cars most surely would benefit. Even pre-tsunami they had their dukes up ready to battle the Japanese industry. Now, composed of Korean-made parts, their supply was unaffected. The tsunami meant little to the manufacture of Kia and Hyundai. Not that American shoppers knew that. A report stated that visitors to Korean dealerships, as well as Japanese dealerships, had dropped off post-tsunami. Geography-illiterate Americans simply lumped Japan and Korea together. (And then there were those usual mind-numbing claims in the blogosphere that all cars coming from Asia would be radioactive anyhow. You’ll recall that the wave had killed a nuclear power plant in its sortie ashore. But whoo boy.)

Yes, Fred’s clients had good choices. “Detroit” cars, the Korean cars, the US-built cars of the Japanese companies. And then there was all of Europe, wasn’t there? In Fred’s own garage sat an appreciated VW Tiguan. The Tiguan was a good alternative to the RAV4, except the RAV4 had been beating it all hollow on the pricing front of late. Remember, Toyota’s first punch to the gut, long before the earth shook, was a redux of unintended acceleration. Ill-placed floor mats. Whatever. Some claimed ill-designed electronics. But an official investigation had cleared the electronics of fault. Toyota had been all but wrapping RAV4s in Christmas paper as its recovery from that first punch began. Excellent deals at least kept buyers in Toyotas through all its bad press. Gradually those deals tapered toward normality as recovery progressed.

Then came the second punch. That death wave. Harder on Toyota even than on Honda, Nissan, Subaru and Mazda because Toyota still produces more of its cars in its home country that it does abroad, many more than the other Japanese carmakers. (Nissan was reporting increased profits as May deepened.)

Maybe a two-liter “Trials of Job” would be a good next model for Toyota. (Preferably with a diesel.)

Though Fred had taken advantage of the RAV4’s positive marketing, sending lot of them across the country to a pleased clientele, he had prepared for a shrinking supply. The Tiguan is it will be. Except. Guess what he discovered about the safely-German Tiguan? Its transmission is made in Japan !

Is that a problem? It hasn’t seemed to be so far. But the world juddered a bit and shrank a tad more. And the tsunami dampened some more boot soles.

Want to read even more McBlog’s? Check out our columnist’s latest, greatest — and plenty of classic — work on DeniseMcCluggage.com.

Japanese Production Bouncing Back – But Automakers, Suppliers Ready to Abandon Quake-Prone Nation

“Frantic” efforts and “war rooms” helping suppliers get back to business.

by on May.12, 2011

The March 11 quake -- and the strong yen -- could lead Toyota and others to increasingly shift more of their production out of Japan.

It won’t be a good year for Japanese automakers large or small.  The disaster that shook the island nation two months ago all but shut the industry down for a month and makers will be operating at a fraction of normal levels for some time due to shortages of parts ranging from plastic panels to microchips.

But a massive, behind-the-scenes effort could end the crisis a bit sooner than expected – though it leaves many observers wondering just how much Japan’s home auto industry will be hollowed out in the process.

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Even as manufacturing slowly creeps back to normal, industry officials are warning that they may shift more of their operations – both automotive assembly and parts production – out of quake-prone Japan.

“How much longer should we insist on producing in Japan?” asked Chief Financial Officer Satoshi Ozawa, as the maker announced a 77% plunge in its profits on Wednesday.

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Small Cars Drive Big Sales Gains in April

But Japanese makers begin feeling pinch of shortages.

by on May.03, 2011

Small cars, like the Hyundai Elantra, gained significant ground in April.

It was a big month for the auto industry, though the emphasis was on small cars.

General Motors, Ford Motor Co. along with Hyundai/Kia all posted substantial sales gains during April, Audi meanwhile reporting its best April ever, even as industry giant Toyota continued to stumble.

General Motors sales increased 27% in April, while Ford Motor Co. reported a 16% increase and Chrysler Group sales climbed 22%.  Hyundai reported a whopping 40% sales gain as it continued to woo buyers from other big Asian brands – pushing its market share to a solid 5.7% for the month, triple what it held less than five years ago.

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All three domestic carmakers credited new models for their strong sales last month, primarily small cars like the new Chevrolet Cruze, which gained 180% over the old Chevy Cobalt.  But there was still some strength left in large, luxury and muscle cars, like the Ford Mustang, which came on strong despite the run-up in fuel prices last month.

The improving car market is seen as a sign of an increasing healthy U.S. economy, though observers fret that if fuel prices get too high buyers might pull back in the months to come.  That might also happen, according to analysts, if makers pull back even more on incentives.  Overall, givebacks declined by about 4% in April, according to TrueCar.com, with some makers – notably Honda and Toyota – reducing their incentives by 17% or more.

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GM Goes to War

"War room" strategy could push GM past Toyota in 2011.

by on Apr.27, 2011

Toyota CEO Akio Toyoda with the now-delayed Prius V.

General Motors has gone to war.  Struggling to avoid the sort of parts shortage problems crippling its Japanese rivals, the maker has assigned several hundred managers to three “war rooms,” in Detroit, Tokyo and Shanghai, with the aim of keeping its assembly lines stocked and running.

That’s no easy task in the wake of the March 11 earthquake, tsunami and subsequent nuclear plant disasters that all but shut down the Japanese auto industry for more than a month.  Toyota alone lost about 542,000 units of production in March, it revealed this week, and the global sales leader does not expect to have its worldwide production network back up and running at full speed until November or December.

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Toyota is by no means alone, the March disaster hitting hard all of the Japanese automakers – and impacting virtually all major car companies worldwide to at least some degree.  GM, in fact, was forced to briefly close a plant in Louisiana, with two European plants also affected.  But the maker is working hard to ensure even worse problem don’t develop.  And if it can keep things running reasonably smoothly, industry analysts say GM will likely end 2011 as the global sales leader, a title it lost three years ago, shortly before its bankruptcy.

“The war rooms stay in touch around the clock and have the authority to move parts around as needed,” explained Tim Lee, head of GM International Operations.

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Japan Crisis Could Slam Ford Bottom Line

But impact likely less than facing Japanese makers.

by on Apr.12, 2011

The shortage of Japanese-made parts could hit Ford hard on the bottom line, the maker warns.

Ford Motor Co. has warned, in a government filing, that it expects to feel a significant impact from the Japanese auto industry meltdown due to ongoing parts shortages.

The crisis has already begun to affect the maker’s production and will soon disrupt operations, especially in Asia, the U.S. maker said in filing with the Securities and Exchange Commission.  That will likely lower financial results in the coming months, Ford declared.

“We could have to reduce or temporarily cease production of vehicles, which could adversely affect our and Ford Motor Credit Company’s financial condition and results of operations,” Ford stated.

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Nonetheless, the impact is likely to be less severe than that being felt by Japanese automakers such as Toyota and Nissan, who lost much of the last month’s production at their home plants and will be seeing further cuts in factories around the world in the weeks to come, industry analysts predict.

“We now expect that beginning in the last week of April and continuing into May, certain of our operations in the Asia-Pacific region (including certain of our joint venture operations) will be affected by shortages of components and vehicle kits as a result of the events in Japan,” the Ford filing stated. “Although this likely will require us and the affected joint venture affiliates to reduce or temporarily cease production of certain vehicles in the Asia-Pacific region, we do not expect this production disruption would have a material impact on our overall results.”

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Japanese Makers At Risk if Shortages Linger

Inventories could plunge by half.

by on Apr.05, 2011

Will normally loyal import buyers switch if faced with serious shortages of products like the new Honda Civic?

The ongoing crisis in Japanese automotive manufacturing could be the biggest setback brands like Toyota, Honda and Nissan have faced in decades should anticipated product shortages send buyers scurrying to check out competing products.

Dealers could struggle with barely half their normal inventory of Japanese cars, trucks and crossover in the coming months, warns the nation’s largest automotive retailer – while analysts say that rising prices could be an equally influential factor leading to mass defections by normally loyal import buyers.

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Nearly a month after Japan was rocked by a 9.0-magnitude earthquake and subsequent tsunami, a large portion of the island nation’s automotive assembly plants remain out of action or are operating at significantly reduced production schedules.  Though only a few assembly lines were damaged by the disaster, scores of automotive parts plants were impacted.  And compounding the situation, Japan continues to struggle with rolling blackouts in the wake of the crisis at the Fukushima Daiichi nuclear plant touched off by the quake and tsunami.

“Everybody’s in crisis mode,” said Michael Jackson, CEO of AutoNation, the Florida-based retailer that operated 243 dealerships in 15 states.

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