Q&A: Toyota Sales Chief Bob Carter Fears the Auto Industry is Pricing Itself out of the Market

It’s been a tough couple years for the U.S. auto industry. There was the production shutdown caused by the COVID-19 pandemic, then the shortage of semiconductors has forced manufacturers to repeatedly cut production, leaving dealers with a dearth of inventory. Now, with the cost of even the most basic commodities like steel rising fast, the price for new vehicles has begun skyrocketing.

So far, Toyota has fared about as well as any manufacturer, but the walls are closing in, said Bob Carter the longtime executive vice president of sales for Toyota Motor North America. Just last week, Toyota slashed production twice, and it warned more cuts are likely. With few vehicles on showroom lots, dealers have little to sell and many customers are being priced out of the market, anyway, Carter said during an interview this week at TMNA headquarters in the Dallas suburb of Plano, Texas.

“None of us has ever seen anything like this,” said Carter, who has spent more than four decades with the Japanese giant. Here’s more of what he had to say about the current crisis shaking the foundations of the U.S. auto market.

TheDetroitBureau: It’s difficult to know where to start, there are so many challenges facing automakers and auto buyers alike. What’s your most serious concern?

Bob Carter: I’m not the purchasing expert but I do have responsibility for pricing the product line. And (rising) raw material prices are an industry issue. The industry can’t absorb this type of runaway inflation. So, we’re passing it onto the consumers. Right now, that’s going to be fine because demand is so much higher than the available production. But, in 2023, as the supply chain starts to stabilize (and production increases), you’re going to have much higher vehicle prices and increased interest rates. That’s is causing us to price beyond what the consumer may be able to pay.

TDB: You’ve said this is a different crisis from anything you’ve ever seen before. How so?

Carter: We’ve had all kinds of different crises through the 40 years I’ve been around and I can’t find all the ones before that stopped consumer demand. But manufacturing keeps going and eventually consumer demand comes back so every time we’ve had an industry crisis, there’s been a glut of inventory. (Immediately after COVID hit), demand dropped suddenly, but it actually came back before manufacturing could catch up and that’s put us in this situation.

TDB: For now, the most immediate problem is the supply chain disruption and how that’s reduced dealer inventory?

Carter: At the beginning of the month we had about a 5-day supply of vehicles in dealer inventory. (Ed: The industry norm is 60 to 65.) We ended (May) with 7,400 vehicles in dealer stock. That’s a 1.3-days’ supply. We retailed more vehicles than we produced.

Last October we thought there would be enough demand out there to support sales of 17.2 million vehicles (in 2022). But we knew there were supply chain issues, so we (forecast) 16.5 million because we knew the industry couldn’t support full demand. Right now, the question is whether the industry is going to be able to build 15 million. And that’s driving transaction prices. It’s driving everything.

Getting back to normal?

TDB: How long will it take to get the supply chain stabilized, production back up … and dealer inventories back to normal?

Carter: It’s probably going to be deep into this year, maybe Q4, before we start to see stabilization of the supply chain and then begin to stabilize production. But, keep in mind we’re down to a 1.3-day supply. It won’t be back to normal until you can go to a dealership and see 30 days of inventory. That’s a healthy number — but still down from where we’ve previously operated at. I don’t expect to see that until Q3 of next year.

TDB: You’re talking a “new norm” of 30 days’ worth of inventory, but that’s still half what has been the industry norm.

Carter: This industry is much more efficient than it was 20, 30 years ago. What I’m suggesting is I don’t want to go back. There are many benefits for consumers, dealers and us if we operate with less inventory.

A new buying process

TDB: Some manufacturers seem to want to change the way consumers buy vehicles, especially EVs. Ford CEO Jim Farley this week said he wants to sell all the company’s EVs through advance orders.

Carter: I’m not sure I understand the logic. I’m not sure how the consumer is really going to look at that, and how the dealer body will look at that, as well.

TDB: Europe already has a more order-based approach to retailing. Could that work here?

Carter: I mean, it could for a little bit of the market but, you know, many of the consumers today have no idea what they want, not making the decision till they actually go in and see the car. How does the order out model work under that scenario? I don’t think anybody has those questions answered yet.

Electrification

TDB: Let’s wrap up by talking electric. You’ve got a new EV coming to market, the bZ4X. We’re seeing some good sales numbers from Ford and Tesla already. What do you see happening as we push forward?

Carter: Electrification is the future of the industry. The transition to 100% BEVs is going to happen in North America. Emerging countries and Africa? Who knows? But what’s debatable is going to be the rate of transition. Ask 10 people and you’ll get 10 different answers. That’s where I like our strategy of having some internal combustion engines, hybrids and plug-in hybrids. We aren’t chasing regulations. We overcomply. What we intend to chase is the consumer. I want to be the Macy’s department store of powertrains.