Toyota Recall Analysis

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High level overview of the Toyota recall. Deals with 0% financing, Long and Short term effects and current sentiment

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  • Given the right data sources the sales and share graphs could be put together and look very similar to this chart. Data from Wardsauto.com
  • Major Manufacturer defined as top 6 which includes: GM, Ford, Chrysler, Toyota, Honda, & Nissan. Significant Others include: Mazda, Hyundai, Kia, Volkswagen, Subaru, Mitsubishi, BMW, Mercedes Only Mitsubishi had negative sales volume vs. 2009.
  • This chart shows that for the first two months of 2010 6 manufacturers are performing above the industry average in sales volume increase.
  • Toyota Recall Analysis

    1. 1. Toyota Recall Analysis For Jumpstart Automotive Group Prepared by: Stephen Abowd March 26, 2010
    2. 2. Background <ul><li>December 2009 Toyota #1 in worldwide sales </li></ul><ul><ul><li>General Motors held the spot for the 77 years. </li></ul></ul><ul><ul><li>GM continues to be #1 in the US. </li></ul></ul><ul><ul><li>In April 2008 Toyota eclipsed Ford in the US market to take over the #2 spot. </li></ul></ul><ul><li>2009 US vehicle market weakest since 1992 </li></ul><ul><ul><li>February 2009 was worst single month since 1980. </li></ul></ul><ul><ul><li>August 2009, during Cash for Clunkers, was the only month sales increased over 2008 levels. </li></ul></ul>* Wards & Automotive News sources
    3. 3. SAMPLE
    4. 4. Recall Background <ul><li>In September 2009 Toyota recalled 3.8 million vehicles </li></ul><ul><ul><li>Recall to replace floor mats that interfered with gas pedal operations. </li></ul></ul><ul><ul><li>Floor mats hardly had consumers worried that Toyota’s were unsafe and the recall seemed a plausible explanation. </li></ul></ul><ul><li>In January 2010 Toyota recalls 2.3 million vehicles </li></ul><ul><ul><li>Recall to fix gas pedals and software updates that clearly had grave safety and quality implications not associated with the earlier recall. </li></ul></ul><ul><ul><li>1.7 million vehicles were subject to both recalls. </li></ul></ul><ul><li>The phenomenon of unintended acceleration is a more dynamic safety issue than stuck gas pedals on thick floor mats. </li></ul>
    5. 5. How has the recall impacted Toyota’s sales? Short Term
    6. 6. Toyota Sales Impact January 2010 <ul><li>Toyota share of U.S. market in 2009 18.4% </li></ul><ul><li>Total US light vehicle sales grew 6.3% vs. January 2009 </li></ul><ul><li>Due to the recall: </li></ul><ul><ul><li>Toyota suspended sales of 8 models for the last 5 selling days of the month </li></ul></ul><ul><ul><li>8 models represented 60% of 2009 sales </li></ul></ul><ul><ul><li>Toyota sales dropped 16% vs. January 2009 </li></ul></ul><ul><ul><li>Toyota’s share slipped over 5 points to 13.5% </li></ul></ul><ul><ul><li>Camry, the number one nameplate for the last three calendar years, fell to 5 th. </li></ul></ul>
    7. 7. Toyota Sales Impact February 2010 <ul><li>Total US light vehicle sales increased 13.3% over February 2009. </li></ul><ul><li>Toyota sales were down 8.7% vs. February 2009 </li></ul><ul><li>Toyota was the only major manufacturer with negative volume vs. February 2009. </li></ul><ul><li>February 2009 was the worst US vehicle sales month since 1980. </li></ul>
    8. 8. How has the recall impacted Toyota’s sales? Long Term
    9. 9. Long Term Impact <ul><li>Toyota must fix the problem completely or lose consumer confidence </li></ul><ul><ul><li>Consumer Reports has removed all recalled models from their Best Buy recommendation list </li></ul></ul><ul><li>Toyota forecasts a $2 billion hit to operating profit for 2010 </li></ul><ul><li>Analyst forecast a 3 point drop in US market share to 14% (loss of almost $3 billion in operating revenue) </li></ul><ul><li>A $1000 average increase in incentives per vehicle might depress operating profit another $2 billion. </li></ul><ul><li>Toyota will incur costs from an increase in reserves for the loss of residual value in its used cars. </li></ul>
    10. 10. Long Term Impact <ul><li>The Detroit 3 experienced a similar scenario in 2008-09. </li></ul><ul><ul><li>It bankrupted two of them and sent the other deep into debt. </li></ul></ul><ul><li>Toyota is in much better financial condition going into this recall. However, if the reliance on cut rate financing and rebates grows we already know the ending to this story. </li></ul>
    11. 11. How have Toyota’s sales impacted the SAAR for the US light vehicle sales in 2010?
    12. 12. Total US Vehicle Forecasts 2010 <ul><li>Edmunds.com 11.5 </li></ul><ul><li>Automotive News 11.0 </li></ul><ul><li>Wards Automotive 10.8 </li></ul><ul><li>R.L. Polk & Company 10.5 </li></ul><ul><li>S&P 11.7 </li></ul><ul><li>Total annual forecast in million units. </li></ul>
    13. 13. Cash for Clunkers June - August
    14. 14. No Impact on SAAR <ul><li>Most industry forecasts are built with both demand and supply information. </li></ul><ul><ul><li>Toyota sales are expected to be less than originally planned. </li></ul></ul><ul><ul><li>Industry forecasters do not anticipate that Toyota's loss will cause a drop in overall demand. </li></ul></ul><ul><li>US light vehicle forecasts will remain in the 10-11 million unit range precluding any government intervention. </li></ul>
    15. 15. Which other automotive brands will benefit from Toyota’s transgressions and why?
    16. 16. Who Benefits? January-February 2010 Sales as reported by Wardsauto.com
    17. 17. Who Benefits? - Domestics <ul><li>Ford and Chevrolet close quality gap </li></ul><ul><ul><li>The J.D. Power initial quality survey found that for 2000 model year vehicles, Ford and Chevrolet vehicles had between 29% to 42% more problems than Toyotas and Hondas. But for 2009 model vehicles, the gap is down to between 1% and 4%. </li></ul></ul><ul><li>Ford and Chevrolet getting increased consideration </li></ul><ul><ul><li>Not tied directly to Toyota’s recall issues but shows they are gaining in popularity. (Maritz New Vehicle Customer Survey) </li></ul></ul>
    18. 18. Who Benefits? - Ford <ul><li>Outsold GM & Toyota in February </li></ul><ul><li>The product lineup gets 3rd party endorsements: </li></ul><ul><ul><li>Car & Truck of the year (NAICS) </li></ul></ul><ul><ul><li>EPA mileage winner in Fusion Hybrid </li></ul></ul><ul><ul><li>JD Power Quality awards </li></ul></ul><ul><ul><li>Favorable press from its harshest critic, Consumer Reports. (CR recently lauded Ford for achieving &quot;world class&quot; dependability in its cars.) </li></ul></ul><ul><li>Demographics are moving closer to Japanese brands </li></ul><ul><ul><li>For those not considering Toyota it is possible they might find a Ford appealing. (Maritz New Vehicle Customer Survey) </li></ul></ul>
    19. 19. Who Benefits? - GM <ul><li>Boast the best domestic warranty </li></ul><ul><li>Best domestic fuel economy (CAFÉ) </li></ul><ul><li>Traverse and Silverado are Consumer Reports Best Buys. </li></ul><ul><li>GM might avoid defection of current discontinued brand owners. </li></ul>
    20. 20. Who Benefits?- Japanese <ul><li>22.8% increase in sales </li></ul><ul><ul><li>No recent recalls </li></ul></ul><ul><ul><li>Altima outsold Camry for the first two months of 2010 </li></ul></ul><ul><ul><li>Altima replaced Camry as a Consumer Reports Best Buy </li></ul></ul><ul><ul><li>33.3% increase in sales </li></ul></ul><ul><ul><li>Consumer Reports Best Buy for the Forester </li></ul></ul><ul><ul><li>Big quality improvement in JD Power index </li></ul></ul><ul><ul><li>Perceived as dependable and long lasting </li></ul></ul>
    21. 21. Who Benefits? - Others <ul><li>36.6% increase in sales </li></ul><ul><ul><li>German engineered </li></ul></ul><ul><ul><li>GTI is a Consumer Reports Best Buy </li></ul></ul><ul><li>11.5% increase in sales </li></ul><ul><ul><li>Competes head to head in Toyota’s volume segments. </li></ul></ul><ul><ul><li>Best warranty in the US </li></ul></ul><ul><ul><li>Elantra is a Consumer Reports Best Buy </li></ul></ul><ul><ul><li>Inexpensive and capable alternative </li></ul></ul>
    22. 22. What are industry experts saying about online shopping volume for new/used Toyotas since the recalls hit the media?
    23. 23. Online Shopping Volumes <ul><li>Edmunds.com </li></ul><ul><li>In January, Toyota's purchase intent averaged just over 13% and then fell to a 9.7% low as a result of the recall announcements. </li></ul><ul><li>Ford Honda and Mazda experienced the largest gain in purchase intent. </li></ul>
    24. 24. Online Shopping Volumes <ul><li>USA Today/Gallup </li></ul><ul><li>17% of prospective buyers said they would no longer consider a Toyota vehicle </li></ul><ul><li>53% said they would consider Toyota </li></ul>
    25. 25. Online Shopping Volumes <ul><li>CarGurus.com </li></ul><ul><li>Toyota's share of shopping search volume at CarGurus.com dropped between 6-16% depending on the car model </li></ul><ul><li>Kelley Blue Book </li></ul><ul><li>Purchase consideration of Toyota fell 20% after the recent recalls, dropping it from first place to third behind Chevrolet and Ford </li></ul>
    26. 26. What is the short term impact of Toyota’s 0% financing incentive to help push sales?
    27. 27. Short Term Impact 0% Financing <ul><li>Increase in purchase intent </li></ul><ul><ul><li>On March 1, Toyota purchase intent had recovered to 13% from a low of 9.3% in January. </li></ul></ul><ul><ul><li>After the incentives program was announced, Toyota purchase intent soared to 18%, a 38% increase in online consideration. (Edmunds.com) </li></ul></ul><ul><li>Increase in sales and market share </li></ul><ul><ul><li>Mid March estimates show sales 22-34% higher than last year. </li></ul></ul><ul><ul><li>Analyst warn that these increases are due to incentives and not necessarily a rise in demand. </li></ul></ul>
    28. 28. Long Term Impact of 0% <ul><li>Residual & used vehicle prices will fall. </li></ul><ul><ul><li>Automotive Lease Guide (ALG) has already lowered Toyota residuals for this spring </li></ul></ul><ul><ul><li>Additional decreases will be seen if the massive incentives continue through the end of the year. </li></ul></ul><ul><ul><li>Analyst estimate residual losses could reduce operating revenue by $2 billion. </li></ul></ul><ul><li>Future 0% financing incentives will have diminish returns </li></ul><ul><ul><li>Finding ways to lure customers to the Toyota brand will become increasingly more difficult if quality issues remain a concern. </li></ul></ul><ul><ul><li>Chrysler and GM can both attest to the lackadaisical responses to 0% financing for their products these days. (Can be verified by plotting registration data from R.L. Polk or internal sales data from GM and Chrysler with an overlay for the 0% finance periods) </li></ul></ul>
    29. 29. Impact of 0% <ul><li>The current Toyota incentives are not part of a long term incentive strategy </li></ul><ul><ul><li>A reactionary solution to overshadow a known product deficiency and lure customers into purchasing. </li></ul></ul><ul><ul><li>0% financing is not a long term cure but a tactic with some disastrous side effects. </li></ul></ul><ul><ul><li>These kinds of promotions tend to diminish brand value and negatively impact profits. </li></ul></ul>
    30. 30. Long Term Impact of 0% <ul><li>Hooking customer through massive incentives removes any premium price differential Toyota may have enjoyed. </li></ul><ul><li>Once customers experience the ‘sale’ they will continue to look for it in subsequent buying cycles. </li></ul><ul><li>While these incentives may lead to a temporary increase in sales momentum, it could also potentially slow the pace of long-term recovery. </li></ul>
    31. 31. Consumer sentiment regarding Toyota will be critical to gauge due to their previously high loyalty rates. Using three different sources can you tell us what consumers are saying/feeling about their trust, consideration and purchase intent towards Toyota vehicles?
    32. 32. Consumer Sentiment <ul><li>Automotive Lease Guide (ALG) </li></ul><ul><li>Reports that 70% of consumers who had intended to buy a Toyota prior to the recall still intended to purchase a Toyota in the future </li></ul><ul><li>13% say they would no longer purchase a Toyota. </li></ul><ul><li>57% said they would only buy a Toyota if the quality issues are resolved. </li></ul>
    33. 33. Consumer Sentiment <ul><li>Rice University's Jones Graduate School of Business </li></ul><ul><li>“ Before the recalls, Toyota's reservoir of brand equity was seen as unparalleled among its customer base. That didn't just vanish. The consistent and high level of satisfaction with the brand experience means that their current customers are viewing this performance lapse as an anomaly .” (March 6, 2010 Brand Insulation Study Press Release) </li></ul>
    34. 34. Consumer Sentiments <ul><li>Despite the massive incentives on most Toyota models none of them made Kelley Blue Book’s top five deals of the month. </li></ul><ul><li>45% of new-car shoppers are now considering a Toyota vehicle, up 13 percentage points from last week's 32%. (March 2, 2010) </li></ul><ul><li>45% represents a big jump from where the brand stood even before the January recalls when 38% of shoppers had a Toyota vehicle in their sights. </li></ul>Source: Kelly Blue Book
    35. 35. Consumer Sentiment <ul><li>Clearly Toyota owners are far more confident in their vehicles safety than non-owners. </li></ul><ul><li>The same study also finds that 74% of Toyota owners have not lost confidence in Toyota vehicles. </li></ul><ul><li>Among non-owners 57% have not lost confidence. </li></ul>
    36. 36. Consumer Sentiment <ul><li>techcrunch.com & tweetfeel.com </li></ul><ul><li>Though it is difficult to understand consumer sentiment from tweets, both note that negative feelings outweigh positive when Toyota is mentioned. (March 10, 2010) </li></ul><ul><li>Mashable.com </li></ul><ul><li>Though the Toyota recall issue is important it never made the top 10 topics of online discussions. (February & March) </li></ul>
    37. 37. Consumer Sentiment Summary <ul><li>Positive </li></ul><ul><li>70% of owners still intend to purchase </li></ul><ul><li>Loyalty rates still higher than domestics </li></ul><ul><li>Reservoir of brand equity is not gone </li></ul><ul><li>45% new car shoppers considering Toyota </li></ul><ul><li>High level of satisfaction in ownership experience </li></ul><ul><li>83% of owners believe vehicles are safe </li></ul><ul><li>Not a mashable.com top 10 topic </li></ul><ul><li>Negative </li></ul><ul><li>Tweets on the street show negative sentiment </li></ul><ul><li>No Toyotas’ in KBB best deals of the month. </li></ul>
    38. 38. Toyota Recall Analysis For Jumpstart Automotive Group Prepared by: Stephen Abowd March 26, 2010 248-840-7604 [email_address]

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