Top Story for 2009: Toyota Overtakes GM as Number One in Sales

January 7, 2010

Although most end-of-year/end-of-decade stories focus on the 10 or so top stories that have marked the decade, this one is going to focus on the six top seven or eight bombshells of he automotive world in the last decade.

Looking back only a couple of years, we come to what has to be the real shocker of the decade, Toyota taking over the number one spot in sales across the globe. For nearly 80 years, since Charles Metz put the first version of General Motors together around 1920, this automaker has been the leader of the so-called Big Three the top domestic automakers.

 

So big did GM become that it branched out around the world with plants in Europe and subsidiaries there such as Adam Opelwerks, Vauxhall in Australia, plants in Mexico, Brazil, Argentina and sales in the millions every year.

 

Sought after products

 

General Motors products were among the most sought-after in countries across the world. They were the ones that said I've made it! Cadillac deVille limousines were especially sought after, as were big Buicks.

 

But, time and marketing wait for no person and no matter how it twisted an turned, the General just couldn't sit on its laurels anymore. The products it was making were selling to a smaller market share as the imported segment improved their quality and their offerings. For example, not was Toyota constantly improving its quality, it was also readying a luxury division that made its debut about 1990, Lexus. Nissan, the number two import, was also reading its own luxury division, Infiniti, so between the two automakers, markets that were more or less traditionally GM markets because up for grabs.

 

In Europe, for example, cars of choice became Lexus and Infiniti models while GM cars languished and their sales momentum slowed. Frankly, they offered old technology and there was nothing new coming down the sales pipe.

 

Portents of this change could be seen as early as 1978 when the combined imported industry accounted for more than a-third of the sales here. As they say, the handwriting was on the wall and it was only a matter of time before number one became number two.

 

It did take a number of years, though, nearly 20, in fact, for this change to happen, but it did and early this year Toyota became the number-one selling vehicle across the globe. Not, it wasn't in this market where it was still in the top five, but globally. In a way, you could say that Japan finally did what it set out to do in 1940, conquer the world, economically, although the Great East Asia Economic Sphere in the Pacific as the Japanese called their theater of World War II never did really exist in anything but name, they now exist in fact.

 

Which leads us to the second story of the decade, the marker for quality, the bastion of car correctness, the lord of the market, Toyota has been proven to be mortal, after all, and it reported a $4.3 billion loss on sales last year. What happened to make this happen? Being the number one seller had something to do with the size of the loss you have to sell more to sustain your market footprint and if the bottom hadn't fallen out of the sales market, then we wouldn't be having this particular piece of the conversation, but we it did and we are.

 

Toyota takes number 1 spot

 

Toyota, the globe's top-selling brand, found that its vaunted sales machine was faltering and sputtering, actually through no fault of its own because the world's automotive economy was taking a pounding. The reason the pounding was happening was simple, the credit industry gave easy access to credit to anyone who had any sort of credit rating. Some thought they gave access to credit to anyone who breathed and, in a way, they did because they opened the secondary and third level credit markets, which had never really existed to people with very shaky credit histories.

 

The primary purpose of opening these markets was to increase the profit and income to the banks that offered this credit. This credit was based on the same type of junk bonding that precipitated a crisis for companies like AIG.

 

The car industry's finance and insurance departments were sold on the long-term viability of the so-called junk credit market. Many managers, who, like the children in the Yuletide poem 'Twas the Night ... had visions of dollar signs dancing in their heads, leapt after the junk loans like so many piranha after a fresh steak. The feeding frenzy was very embarrassing, but the aftermath was worse.

 

Giant financial houses like Bear-Stearns and AIG all grabbed at the chance for an easy buck and they eagerly waited while banks worked with car dealerships to get so-called stiffs approved (stiff is anyone who might not pay a bill for any reason or who had credit issues) approved and into the system before the end of any month so that the finance manager could take advantage of whatever promotion was going on during the month. The result was a house of cards built on a house of cards.

 

Instead of doing real due diligence, where an individual's credit history was called up and evaluated, the business manager of a dealership just wanted to make sure there was a regular income of some sort the sort didn't even matter the buyer of a $30,000 car could be flipping burgers at a restaurant and making minimum wage and a high auto insurance rate, but if he had a clean credit history, then they placed the loan.

 

That the loan might have been too much for this person in normal times was suddenly okay in these abnormal times, although the term was stretched to 84 months (seven years). Imagine paying a car off for seven years!! Everyone makes a killing in this; the dealer who moves the car, and who usually qualifies for factory incentive money; the business manager who not only made extra money for placing a longer-than-normal loan at a higher-than-normal rate (did you think someone with the credit history of an ant wouldn't pay a huge interest charge?) and the lender who would make all sorts of extra money on the extra years of interest.

 

Smoke and mirrors

 

It was a neat show that was all smoke and mirrors and about 18 months ago began crashing around the economy's head when Bear-Stearns failed and AIG needed a huge government bailout. That a couple of Wall Street money firms had suddenly acquired the status of:

 

  • Key national banks

  • Key national credit institutions

  • Key economic engines

didn't seem to strike anyone as odd until the house of cards really began falling down and people couldn't make the payments on these loans and these loans went into default and with them the financial institutions also went into default. All this led to what seemed, at the time, to be a sudden economic meltdown, but it really wasn't. It was just the result of a basically unregulated industry getting into pursuits it had not business entering.

 

Quite naturally, the stock market took a nosedive of 3,000 points and the other key economic indicators also took hits, including consumer confidence.

 

Then, there was the problem of consumer credit, in this case, as it was almost impossible to get. Even promising to name your first-born or opening a vein wouldn't have worked at this point. The commercial paper business put up a sign out to lunch and close for business.

 

Consumers did what consumers quite naturally do in situations like this, they had no confidence and stopped buying and the once-flying, 15-18 million-a-year-sale car industry took a huge hit to the point where sales were slumped to the 10 to 11 million-a-year point and dealers were suddenly stuck with large inventories of vehicles (and the wrong mix, too heavy in trucks and SUVs that were once the most-profitable sector) and no buyers. At points, salespeople were sitting around looking at one another, earning the minimum wage or less. The industry was in turmoil and everyone was looking for the lifeboats.

 

General Motors had staggering quarterly losses in the billions as did Chrysler, while Ford, which pared everything back to the bone and then some, managed to hang on by its corporate teeth. Toyota, too, the now number-one seller on the globe, reported a $4.3 billion loss for last year and is reported only its way to a $2.7 billion dollar loss this year. It's CEO, Akio Toyoda, the first scion of the family to head the firm bearing its name in a couple of generations could only apologize for the loss.

 

Toyota apologizes

 

He also apologized to the family of the California Highway Patrolman's family for the deaths of four members of that family including the CHP member when a poorly designed mat caught under the accelerator and the car they were riding in suddenly rocketed ahead with no way to stop. The CHP driver held on as long as he could but physics can't be denied and they crashed and four people lost their lives.

 

This, in turn, led to the largest recall in Toyota history at 4.3 million vehicles and extended into the upscale Lexus lines, too. Toyota has redesigned the mat and the shape of the accelerator and is installing it free of charge. It is costing the automaker a fortune.

 

This leads us, in turn, to the next major automotive story of the last decade, the bankruptcies of General Motors and Chrysler. Like Toyota's money woes, General Motors and Chrysler Corp. were facing their own set of money troubles, except on a larger scale.

 

The General, whose product mix was skewed toward the more profitable pickup and Sports Utility Vehicle (SUV) segment, faced mounting losses every quarter. In one quarter alone, last year, the country's larges automaker faced roughly $10 billion in losses. It was the result of a spike in gasoline prices that had begun back in 2007 and found gasoline hitting $4.25 a gallon or more. At one point, just filling up an average SUV cost more than $125, which is quite a chunk of change (source for this, author's experience). When you combined that kind of money with gas mileage that was always in the 12 to 14 range, you had an unbeatably lousy situation for the owner.

 

If the owner was a businessman and did a lot of open road driving where he could expect as much as 19 mpg, the situation was somewhat better, but, eventually, the owner still had to face the piper, as they say, and pay up to $100 or more for the privilege of driving a pickup or SUV. The businessman, of course, could write the costs off on his taxes, but for the average commuter or just plain worker who needed a tuck, it was just a costly nightmare.

 

Into this situation, the automakers tried to do what had always worked for them. They added cash incentives, 0 percent financing, special programs anything to move a vehicle and the pickups and SUVs still didn't move.

 

At the other end of the spectrum, the arena of the Cobalt or Chevy Aveo or Pontiac G6, sales were still slow because people just didn't trust things to work out and there were many people, thanks to the credit debacle who lost their jobs and who couldn't afford to replace the cars they normally replaced every four years or so.

 

Buying cycle foiled

 

And, believe it or not, this would have been the fourth year of the buying cycle, so many owners who should have been in the market held back. Only Honda was able to report a small sales gain last year, essentially holding its own with a 1 percent sales increase.

 

It was not a happy situation for The General, at all a model line skewed toward the once-profitable truck, an old set of body lines and engines for their economy cars, and very little new coming down the pike at that moment, anyway.

 

Chrysler had its own peccadillo. Owned by Daimler-Benz, the partnership was proving more of a drain for the German automaker than for Chrysler. Daimler-Benz wasn't achieving the breakthroughs it had though it might using Detroit engineering and it was turning out that while the products they were selling were popular with lots of the population, the engines were too big for $4.25 per gallon gas. The result was that Daimler-Benz had its own crisis of faith with its hookup to Chrysler and decided to walk away.

 

That left Chrysler up a very large creek without a paddle or oars and half the boat was sinking because Daimler was propping it up. And, when you think about it, the lineup that Dodge and Chrysler had was pretty good. It had the revived Charger R/T, the 300M and a very good two-place, the Crossfire. It also had a vehicle that Mercedes-Benz was offering as the R300 and which we knew as the Pacifica. It was a good, six-cylinder minivan.

 

There was only one problem, Chrysler Corp. didn't have any money for further development or support with the pullout of Daimler-Benz.

 

So, what did both automakers do? They turned to Washington, rightly pointing out that one in six workers in this economy somehow is either supported by or supports the auto business. If you turn that into round figures, it turns out that it has a lot of 0s in it, but more than that it means that not only would the automakers be burned if they went out of business, but so would many other folks you would not necessarily associate with cars (banking, finance, retail stores, to name a few).

 

Washington steps in

 

Washington could not let this happen to such an important segment of the economy and so the administration and lawmakers decided they would help the auto industry weather the slump. It was a big lump for them the industry to swallow, but it had to do it. In order to receive help from Washington, both GM and Chrysler had to:

 

  • Declare bankruptcy

  • File detailed recovery plans

  • Downsize their workforces

  • Fully fund their pension plans

  • Eliminate many of the perks that retirees

 

Chrysler worked out its bankruptcy in record time and was in and out in less than 60 days. It also acquired, along the way, a 20 percent owner in the form of Italian state-owned automaker Fiat and there are plans to bring Fiat models over here and base some 2012 models on the Fiat 500, one of the new microcars that will increasingly be seen on the roads around the country.

 

The General took about 60 days to work out its plans and in the end agreed to streamlining its offerings, cutting its dealer base and doing things like ending perks and funding pensions. It did emerge from bankruptcy with a promise of aid from Washington and so now the public you and I own 60 percent of the automaker as it has borrowed between $8 and $12 billion for its recovery plan.

 

Some of the cars that are part of the recovery have been introduced already include last years Motor Trend Car of the Year, the 2009 Chevrolet Malibu. According to various dealership sources, Malibu's are fast turning into the vehicle of choice for imported buyers who were frustrated by the pricing at a Honda or a Toyota shop where pricing doesn't move very much and where there are fewer incentives available.

 

Designed by GM's DAWAT design studio the remnant of GM's abortive tieup with Daewoo the Malibu's line deliver an imported flare at a domestic price and with pricing that can usually beat an import by several thousand dollars. Indeed, we were told by some dealers that folks who are on the line between different import makes are coming in and purchasing the new Malibu. It is a perfect accompaniment to the 2006 Impala, when the last major shakeup occurred in hat line.

 

Chevy modernizes

 

Then, there's the Chevrolet Cruze, a small crossover that is being discovered by a new generation of buyers. And, of course, the restyled 2010 Camaro is helping Chevrolet hold its own. GMC is another of the divisions that is helping GM regain its footing. It is experimenting with a fleet of hydrogen-powered GMC SUVs. This test is finding widespread acceptance.

 

Buick and Cadillac, the only two divisions left to the former automotive giant round out their offerings with the Crossfire (Buick), built on the Malibu chassis and Cadillac is offered a series of performance vehicles that, to sort of steal an old line,show you that it's not your father's Caddy anymore.

 

The downside to this is that Hummer, Saab, Saturn and Pontiac look to be done for and will soon be footnotes in automotive history books.

 

Right now, one of the stories that's beginning to wind down is the mad to dash to try to save Saab. At first, it looked as if a white knight in the form of the performance-car-builder Koeniegsegg might be the company to save the 3,400 positions in Trollhatten, Sweden. There was only one problem about a $600 million problem, to be exact the buyer wanted loans or loan assurances to the tune 450 million euros or about $600 million from the European Monetary Fund. Their answer was a resounding yawn and no, so Koeniegsegg, who didn't want to put everything in one basket, pulled out.

 

Then there was talk of Bejing Automobiles putting the money into the soon-to-be-gone Swedish automaker, but all they wanted was the technology that was developed when Saab was owned 100 percent by GM (for about the last decade, from 1989, the automaker owned 60 percent).

 

Then, Spyker entered the picture as a last-minute white knight, but questions about its funding, according to AOL, put the torpedo up this one's spout.

 

Saab drama ends

 

So, shortly after the first of the year, the Saab dream, which began with the bullet-shaped 92, the cult 96, the GT and later the 9-5, will become another of the GM divisions to go into history.

 

Two of the bigger stories of the year and decade revolve around the same topic, direct government aid to the car industry. We've already seen part of this program, the GM and Chrysler bankruptcies and subsequent takeover by the government, but we didn't explore and won't explore deeply because they have been covered in excruciating detail are the Obama Administration's direct injection of nearly $4 billion in cash.

 

Operated by the National Highway Traffic Safety Administration, the aim of the program was to remove up to 1 million gas guzzlers from the road, primarily older, big-engined cars and trucks. The response to this program was so great that it overwhelmed the agency and many dealers complained they weren't getting paid quickly enough and others pulled out of the program early. The result was the Obama Administration tripled the number of administrators working on the program and about 1 million cars taken off the roads with new ones sold.

 

The program depleted dealer supplies to the point where shutdown assembly lines in Ohio and Michigan recalled their workers as they began to refill inventories drawn down by the Guzzler program.

 

The surprising thing about this program is that it is the first time the government has tried direct aid to an industry like the car industry. It wasn't likely to happen under a Republican laissez-fair, free-market administration so it did take a change in administration to bring this about.

 

What hasn't been noted is another of the key stories of the decade, Ford Motor Co. Yes, it's true that everyone seems to complain about the Ford Motor Co., but it proceeds merrily along, rejecting government bailouts and producing vehicles that are the envy of the rest of the industry. Indeed, at a time when GM and Chrysler went to Capitol Hill with their hats in their hands, Ford was arranging new

lines of credit to retain control of its products and to keep the government out its project meetings.

 

Ford turns profit

 

Well, it worked and Ford was the first to turn an almost $1 billion quarterly operating profit last quarter with a net profit of about $400 million, the first domestic automaker to show that maybe, just maybe the industry was turning the corner.

 

So, hat's off to Ford remaining independent.

 

Finally there's the green revolution and the explosion of hybrid cars, but we'll save that for another time.

 

If you look at the stories we've discussed you'll see just how important they were not only to the year but also to the decade. If anyone asks for our vote, though, for story of the decade it would still have to be the Cash for Guzzlers program.

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