Can a "family" of Prius hybrids, plus "more passionate" designs, reverse Toyota's recent problems? Jim Lentz is betting on it.
It wasn’t supposed to turn out this way. Going into the New Year, it was starting to look like nothing could go wrong for Toyota, not after it nudged aside General Motors to become the world’s best-selling automaker. But things turned south in a hurry as a result of the calamitous collapse in the American auto market.
With its U.S. subsidiary posting hefty, double-digit declines, the Japanese parent suddenly plunged deep in the red. That’s prompted big management changes, right up to the chairman’s office, where Akio Toyoda, heir to the company’s founding family, has become the new Toyota Motor Company CEO. If anything, however, President Toyoda is planning to put more power into the hands of the company’s American management team, including Chief Operating Officer Jim Lentz.
The boyish-looking Lentz has worked his way up through the organization, and left his touch on Toyota Motor Sales, USA, in many ways. Yet, he plans even bigger moves going forward, as he explains in this Q&A.
TDB: In his speech, Toyota’s new CEO, Akio Toyoda, talked about the steps he would take to turn things around. And it seemed like a lot of that involved fixing North America.
Lentz: Chairman Toyoda has a real, strong affection for the U.S….and wants decisions to made closer to the market than they are today, in Japan. We have the right ingredients to do it in North America. And what we want is cars that are more fun to drive. That will b great for sales, great for Toyota’s image and, most importantly, great for our customers.
TDB: In recent months, Toyota officials have often said lithium batteries weren’t ready for market and that the company would focus on relatively conventional hybrids, like Prius, rather than plug-ins or pure electric vehicles. But now, Toyota is announcing it will build a battery car in 2012. What happened?
Lentz: We’re convinced there is no one solution. Hybrids will be our base (alternative) powertrain for some time into the future, but our hybrids will go towards lithium-ion and we will look at other powertrain solutions. We don’t think there’s a one-size-fits-all solution.
TDB: Not all that long ago, it seemed like everything was going right for Toyota. What went wrong?
Lentz: If you look at the last four recessions, the fall from the peak to the valley was about 20%. In 2001, sales peaked at just over 17 million, so one could have forecast that the valley would be around 13 million, which it was, last year. But this year, we’re looking at less than 10 million, a decline of 40%. No one could have forecast that kind of drop and not even Toyota could adjust for that kind of drop.
TDB: So, what do you need to do, in the near-term, to recover?
Lentz: I think we have a good handle on our customer strategy, but we need to get (industry) sales back to normal levels. It’s difficult for any manufacturer to make money in a market requiring heavy incentives with volume at a 10 million rate.
TDB: What do you mean by pushing decisions down to a local level? And can you give an example of what might have been done differently?
Lentz: Toyota is all about QDR (Quality, Dependability, Reliability), but our Scion buyers want passion in design and passion in driving dynamics. In Japan, there’s not as much interest in driving dynamics. So, looking at the second-generation Scion xB, we would have made it more fun to drive than the way Toyota did it for the Japanese market. Here we would have done it differently.
TDB: Are you saying your products lack passion, today?
Lentz: They could be more passionate and they could have better styling. The new Prius and the new Lexus RX are definitely more passionate, but we need dial that up a notch.
TDB: Will there be a third-generation xB?
Lentz: The next version of the xB is not even on the drawing table, yet, and we haven’t decided whether to do a redesign or scrap it. I can tell you there will be another Scion tC.
TDB: Chairman Toyoda announced plans to build just such a passionate new product, an “affordable” sports car. Is this being developed with your affiliate, Subaru?
Lentz: It is the joint venture car with Subaru, but that’s all I can tell you.
TDB: Okay, we’ll press a little more. Are you expecting significant volume for the car?
Lentz: “High-volume,” and “sports car” are difficult to use in the same sentence. They tend to be hot for two years and then volumes fall off dramatically. But as we look at Gen-Y, they’ll put more emphasis on dramatic design and performance and it’s important for us to have that car to get in touch with those buyers.
TDB: At the other end of the spectrum, there’s Prius, which seems to have done quite well with people taking advantage of the Cash-for-Clunkers program.
Lentz: We sold about 19,000 Priuses last month. The car has gotten off to a very big start (since the launch of the third-generation hybrid), and inventory is now just 6.5 days supply. Prior to Clunkers, it was about 14 days.
TDB: Is the Clunkers program a success?
Lentz: We still have to understand what is happening with Clunkers, but there’s no question was saw a lift in demand, last month and when consumer confidence (numbers are calculated) for July, there will probably be a lift. Another impact is that with all the money the program is contributing in terms of state sales taxes, part of the beauty of Clunkers is that, in effect, you’re transferring revenues from the federal government to the states.
TDB: You’re not worried the program simply pulled sales forward, and will be followed by a payback slump?
Lentz: In talking to dealers, we believe we pulled a lot of people into the market who weren’t new car buyers, people who would’ve either bought used cars or driven their vehicles until they died. So, we’re confident these are incremental buyers, and this was good for the industry.
TDB: You talk about fuel-efficient cars, then you announce plans for a sports car. How do you reconcile that?
Lentz: What’s important is having a broad array of vehicles, from pickups to hybrids to sports cars… if our goal is to appeal to a broad array of American buyers.
TDB: Will those future buyers want smaller cars?
Lentz: There will be growth in the small car market and entry segment of the market. Younger buyers are not going to buy cars by the pound, like our parents did, and we did. They will want smaller cars, but with all the amenities of today’s cars.
TDB: Yet, a recent study by Experian Automotive reveals that there’s been little to no shift in market segmentation, even after last year’s fuel price spike.
Lentz: I’m not really surprised by that. Prius is not the perfect car for everyone. There are still people with large families that need SUVs and minivans and workers who need full-size pickups. What we’re hearing from consumers is that they don’t want to give up their big cars. But they want big cars with 20% to 30% better fuel economy. (Meanwhile,) the big truck is not dead… but there’s a shift from frame-based trucks to car-based (crossovers).
TDB: Considering the success of Prius, might Toyota consider adding other models with that badge?
Lentz: I was in charge of launching the original three models under the Scion brand and not worrying about marketing the individual products by name. I think the same strategy can apply to Prius, because it has tremendous equity, and have a family of Prius vehicles. But we have to be very careful and not just slap a Prius nameplate on any hybrid we have.
TDB: How soon might this happen?
Lentz: I’m not sure, because the rest of the world hasn’t agreed with me on my vision yet.