Toyota Wants 'Reliable' Rep Back

Q&A: General Manager Bob Carter on Automaker's Outlook for 2008

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DETROIT ( -- During Bob Carter's first year as general manager of Toyota Division, the brand was enjoying hot hybrid sales and making inroads in the full-size-pickup category with the all-new Tundra. But the brand's quality reputation took a hit last fall when Consumer Reports announced it would no longer automatically recommend new Toyotas as "most reliable" without testing them.
Bob Carter, general manager of Toyota Division
Bob Carter, general manager of Toyota Division

While the automaker takes pains to point out that its Toyota, Lexus and Scion models collectively lead the industry with the most models on the magazine's list, it will be up to Mr. Carter to hammer home the reliability claim.

He seems well-suited to the task. Mr. Carter has been at Toyota Motor Sales USA since 1981, after serving as part owner and general manager of Hyannis Toyota in Hyannis, Mass. His stints at the automaker include a number of key posts, including regional general manager, VP-sales for the Toyota Division, and VP-sales and dealer development for Lexus.

Advertising Age: Toyota Division reported overall January sales fell 1.4%, with cars off by almost 4% but trucks up 1.8%. How do you see 2008 playing out for Toyota and the industry?

Bob Carter: There's a lot of varying points of view about where the industry is for '08. We are confident the year is going to come in around 16 million units. The first half of the year will pace at the mid- to upper 15 million (annualized) level, then it will kick in for the second half. But in the first four or five months, there's going to be a lot of volatility, and the volatility is going to be different as you get to different regions. ...

I think we will continue to see some shifts in segments. Consumers don't jump from full SUVs to compact sedans, but you see migration from full SUVs to mid SUVs and compact SUVs, and you'll see mid SUVs to midsize sedans. Compact SUVs are the hottest segment in the industry right now. We're doing very well with the RAV4. ... We have the new Matrix and Corolla and the new [2009] Venza, our crossover sedan, is coming on late in the year. In the consumer groups we've shown it, the feedback has been very positive.

Ad Age: What's happening with the Corolla? At a time when small-car sales are growing, it seems like it's slumping.

Mr. Carter: It's still selling like crazy. ... Our sales were down slightly in calendar 2007, but to have that in the sixth year of a model, the car is over-exceeding my expectations. We did, like, 325,000 units last year. But we are just shipping [the new one], and actually the dealer I was with in Madison, Wis., yesterday just got his first one. So you'll see year over year the climb of Corolla as we get through the first quarter.

Ad Age: Is it time for Toyota to upgrade its warranty?

Mr. Carter: We have got a very competitive warranty -- three years and 36,000 miles bumper to bumper, five-year powertrain, and then we have the 10-year rust coverage. Ultimately we have to give the customer what the customer is looking for. We have done a lot of research and studies, and there has not been a lot of consumer demand to increase it. I think what you are seeing is manufacturers who are using it not necessarily because the customer is looking for it, but they are trying to change the perception of the build quality of their vehicles. We already have that strong perception.

Ad Age: What's happening with hybrids?

Mr. Carter: Our volume on Prius was up 67% last year. That was a supply-restricted 67% increase. That's 181,000 cars. We can't repeat that, no way, even though the demand may be there. We just can't keep up. So you will see much more moderate growth because of the supply. The company has nearly 80% of the hybrid market. There are a lot of viable competitors out there. I don't necessarily view it as what's been our competition in the past, but what's going to be our competition in the future. GM is introducing theirs, and you're going to see more activity out of the Asian manufacturers. What everybody continues to work on is not only hybrid, but what other technologies can deliver the environmental, miles-per-gallon benefits. We are very committed to hybrids but it's not our position that hybrid is the solution to the future. We're looking at high-efficiency gasoline, clean diesel, fuel cells and the plug-in hybrid.

Ad Age: The new Sequoia SUV, loaded, has a sticker price of $53,000. Are you worried about price creep?

Mr. Carter: Part of Toyota's brand is value positioning. If you really take a look at our products, we continue to be value positioned. ... There are grade levels. There's the [base model] SR5 [which starts at $34,150], the Limited [$45,225] and then there's the Platinum [$52,375]. The Platinum has everything but the kitchen sink. Fully loaded, every option, including DVDs, it tops out at $58,000. That vehicle is really competing with the high-end [GMC] Yukon and [Cadillac] Escalade.

Ad Age: What's the Platinum mix for the Sequoia?

Mr. Carter: We have underprojected for that. Anytime I go to a dealer right now, he says, 'Bob, I need more Platinums.' We projected the Platinum mix at about 15%. There are regional variations on it. We know we're going to have to move that mix up, not dramatically, but maybe to 20% or 22% of the mix. We underforecasted the demand for that higher-end vehicle.

Ad Age: Isn't that Platinum pricing heading into Lexus land?

Mr. Carter: We don't get a lot of cross-shopping between Toyota and Lexus. Certainly there's a little bit. But the Toyota customer is typically interested in high-quality value. The Lexus customer is really looking for the experience, the cachet that the Lexus badge presents.
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