Corolla Confronts Sales Slowdown

Rare Stumble Surprises Industry as New Model Fails to Win Young Buyers

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DETROIT (AdAge.com) -- The Toyota Corolla looks to be running out of gas.

While it's still America's fifth-best-selling car, in the first five months of this year, the brand hit a rare bump. Automotive News figures show that combined sales of Corolla and Matrix, a hatchback based on the Corolla sedan, slipped to 152,308 units vs. 165,722 for the same period a year ago. And in fact, despite a new model introduced with great fanfare during the Super Bowl, Corolla is being outsold by the older Honda Civic, redone in 2006.

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Source: Automotive News
Experts blame a number of factors, including uninspired design of the new 2009 model and a flawed ad strategy that didn't resonate with Corolla's target audience. And while Corolla is maintaining customers, the new model isn't drawing new ones. GfK Automotive research found that the number of Americans who say they plan to buy a Corolla within the next 12 months has stayed steady since last October, when the old Corolla was on the market.

And while no one is counting out Corolla, such stumbles are so unlike Toyota Motor Corp. that the U.S. auto industry was caught by surprise. "The reality is this car hit the marketplace at a time when sales should have exploded, and it hasn't," said Wes Brown, VP of auto consultant Iceology.

John Wolkonowicz, senior auto analyst at consultant Global Insight, faults the 10th-generation Corolla, which he said "wasn't perceived as enough of a change" from its predecessor. "The car went from boring car A to boring car B." While he called Corolla "a very good car," he said it is bought for rational reasons, not emotional ones.

Gen why?
Mr. Brown said not only was the new Corolla's "evolutionary" styling not very appealing to buyers, its advertising was off-base and didn't appeal to the Gen Y drivers it targeted.

Toyota's launch TV ads for the new Corolla, from Saatchi & Saatchi Los Angeles in Torrance, Calif., touted the car's quiet interior and smooth ride. The Super Bowl spot featured a 20-something male driver thankful that canons blasting outside the car didn't wake ferocious badgers in his front seat. Another spot showed a sushi chef slicing a toxic fish for a 20-something male passenger to show off Corolla's smooth ride.

But young buyers don't rank quiet and smooth very high as reasons to purchase, said Alexander Edwards, president of Strategic Vision. The auto consultant's research found that the biggest priority for buyers 29 and younger is to look good when they drive.

Toyota, however, said it was pleased with its launch ads. IAG data showed that the Super Bowl spot ranked among the top 10 in-game commercials, a Toyota spokeswoman said. "We're feeling very good about Corolla sales right now."

Corolla's condition this year is by no means terminal. The car got a lift from soaring gas prices, which churned sales in the small-car segment for virtually all contenders. And the number of days the car sits on dealer lots before sale has gone from 52 in February to 25 in April and May and 24 in the first eight days of June, according to data from consultant J.D. Power and Associates' Power Information Network. That beats the turn rate for the total compact segment at 62 days in February, 52 in April, 47 days in May and 42 days in the first eight days of June, PIN said.

Confidence
Mr. Wolkonowicz said he expects Corolla sales to drop in June vs. May because Toyota sold so many last month. But when the year ends, "Toyota will sell every Corolla and Matrix it has," he said, citing an industrywide knee-jerk reaction to gas prices that is driving buyers to smaller cars.

Pump prices are also shifting more buyers to Yaris, which is cannibalizing Corolla's sales because it is smaller, cheaper and gets better gas mileage. According to Automotive News figures, Yaris sales more than doubled to 14,397 units in May from 7,666 in January.

Buyers are also taking a second look at Honda. GfK Senior VP Doug Scott said 19% of consumers who plan to buy a small car cite Civic as their brand of choice, a higher percentage than that for Corolla. Civic sales bested Corolla/Matrix with 164,994 units through May, a turnaround from last year, when Corolla posted a comfortable lead of 371,390 units vs. Civic's 331,095.

Then there's the issue of Corolla's aging consumer base. "I'm not convinced the advertising is going to bring in new buyers" for Corolla, Strategic Vision's Mr. Edwards said. He said the average age of the Corolla driver has risen every year since 2006, when it was 49, to this year's 52. Ditto for Yaris, whose average buyer age rose to 48 from 44 last year.

"I don't think Toyota is immune to pitfalls," he said.

Crossover crisis?

With SUVs getting pummeled by high gas prices, automakers such as General Motors Corp. bet heavily on crossovers to pick up the slack.

So much for that. True, sales of GM's crossover trio were sailing along until May -- and then climbing gas prices clobbered that segment too, said Todd Turner, president of consultant CarConcepts. Sales of GMC's Acadia crossover "nosedived in May" by 27.6% to 6,566 units, Mr. Turner said, and its sibling Saturn Outlook "took an absolute bath" last month, with sales of 2,508 vs. 4,048 in May 2007.

GM reported selling 136,799 of the three crossovers in 2007. Only one of the automaker's three crossovers, the Buick Enclave, enjoyed higher sales: 2,839 units compared with 1,853 in May 2007, when it was just rolling into dealer lots. The marketer plans to launch a Chevrolet version, the Traverse, later this year.

GM is not alone in feeling the pain in the midsize-crossover category. Mr. Turner said the category saw total sales drop 7% in May to 72,595 units vs. the previous May, although the smaller minivan category took a bigger hit last month of 16% to 62,377 units. Nearly every automaker launched a crossover of some sort in the past two years and spent heavily on launch advertising, said Hal Wurster, director of Compete's auto practice.

Even though GM and some of its competitors have trimmed production of midsize crossovers, Mr. Wurster predicted incentives for the vehicles will rise to move the ones already on dealer lots. John Wolkonowicz, senior auto analyst at Global Insight, doesn't forsee to the death of all bigger vehicles. He said Americans will get used to higher gas prices, and when that happens, there will be buyers who can't make do with small cars.

Tom Libby, senior director of auto consultant Power Information Network, also said the market would "settle down," with only the biggest vehicle segments at risk.
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