The Smart Car Gets Company

Toyota is bringing legitimacy to the Kei Car Market

Toyota is introducing a new micro-compact under the Scion moniker called the iQ. The iQ is the first real competitor against the Smart ForTwo. I see a lot of people look at the Smart Car and laugh at it, but I really see a lot of potential in the Kei Car market. With one of the major automakers entering the segment, the Kei Car market is finally achieving some legitimacy.

With the movement towards smaller more fuel efficient cars, these two seat minicars definitely could become the new craze. First of all, they get better mileage. They're lighter and they have smaller engines. It makes sense for automakers to try to push these cars as they try to meet federal MPG requirements.

Challenges:
The first challenge is price. The Smart Car starts a shade under $12,500 and the iQ should start about two grand above that. These cars aren't exactly cheap. I think there will be a bias against them for that because you can get more car for the same price. The pricing structure of cars in America is such that the more you pay the more you get. For these cars to succeed, they will need to prove they are worth the money. I don't know if better fuel economy and better maneuverability can do that.

The second challenge is safety. No matter how many airbags these companies put in these cars, there's going to be some concern. It's simple physics. The smaller car is going to take more of an impact than a bigger car because of its light mass. When you're driving around larger cars and SUVs, there is going to be inherent danger all around. The only real way to make the cars safer is to surround it on the road with vehicles of similar sizes. That doesn't appear like it will happen.

A third challenge is space. How much can a Kei Car hold? Can it hold groceries? Can it hold golf clubs? I personally feel the need for storage space in a car is overstated, but there has to be a minimum for what it can hold. The Smart Car can hold golf clubs, which means it should be able to hold groceries and whatever other small things you need to carry.

Why It Will Succeed:
Toyota getting into this market is a huge deal. I believe that automakers can create new markets if there is a demand and there is good execution. The SUV wasn't a staple of the auto industry until 20 years ago when Ford introduced the Explorer. I believe that when a brand like Toyota gets into this market segment, it increase the potential of the market to grow.

It's important to keep in mind that these cars are geared towards city folks. The maneuverability and small size should make it easier to get around the city and find parking. Furthermore, how much stuff do people in the city have to carry in their car? I think that the need for trunk space is not as big a deal as people think. The amount of money you save from having a more efficient vehicle probably can help make up the money to rent a vehicle when a trunk is necessary.

I think the safety concern is much more important than the price. The key thing is to market towards the city dwellers. These cars are more at risk where cars operate at higher speeds. In a city, there is less speeding and as a result, these cars will be less vulnerable to dangerous crashes. People aren't going to buy these cars if they don't feel safe in them. There will always be innovation in safety and these automakers must make sure that it trickles down into these cars.

It will be interesting to see how these Kei Cars do and whether they can finally be accepted by Americans.

They Can Do No Right

Toyota has halted sales of their Lexus LS model, the company's flagship, because of a steering issue:

The company said May 21 it would recall 3,800 of its model 2009 and early 2010 LS 460 and LS 600h L sedans to fix an “off- center” steering-wheel condition that can develop during certain driving maneuvers. Toyota isn’t aware of any deaths or injuries related to the problem and has received one U.S. complaint, said Bill Kwong, a company spokesman.

Kwong:

“Until there’s a fix, we can’t sell the vehicle,” said Kwong, based in Torrance, California.

With all the problems that BP has had, it's easy to forget the tumultuous year that Toyota has had. They have always been on their high horse about their quality. Now that their having problems with their cars, they have been knocked off. Other companies are definitely performing better right now with General Motors making a profit, Ford doing well, Honda continuing their success. For someone who isn't the biggest fan of Toyota, this is fantastic.

Toyota in Trouble

The US government is going to seek the maximum civil penalty against automotive giants, Toyota:

"We now have proof that Toyota failed to live up to its legal obligations," LaHood said. "Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families. For those reasons, we are seeking the maximum penalty possible under current laws."

Not a pleasant situation for Toyota.

More Toyota Trouble

Toyota faces more trouble as they might have to recall their Corolla

2010 has not been a good year for the world's leading automaker. The prospect of the Corolla having a recall as well could kill sales this year, and the company will have to do a lot to regain the consumer's trust. Here's the problem with the Corolla:

U.S. safety regulators will launch a formal investigation of steering complaints in certain newer model Toyota Motor Corp (7203.T) Corolla vehicles, a government official familiar with the plan said on Wednesday.

The National Highway Traffic Safety Administration has received more than 150 complaints about possible steering problems in 2009 and 2010 Corolla models, the official said, speaking anonymously because the plan has not been announced.

It will be interesting to see how Toyota responds to these problems. They initially reacted pretty poorly, and it doesn't look like there will be significant improvement. I expect Honda, Federal Motors, or Ford to capitalize on Toyota's mishaps.

More Recalls: Toyota Tacoma

Toyota has touted its trucks as being tough. Apparently, they are not so tough:

Toyota Motor Corp (7203.T) will recall 8,000 pickups due to possible cracks in a common drive shaft component that Ford Motor Co (F.N) and Nissan Motor Co Ltd (7201.T) said posed no safety risk to their vehicles.

Toyota is getting torn apart right now. This is tremendous to watch.

Toyota Turmoil

Toyota is facing more recalls, now including the Prius:

To fix the problem, Toyota is responding with a media blitz:

“We believe we are close to announcing an effective remedy,” the Toyota City, Japan-based automaker said in an advertisement in more than 20 U.S. newspapers yesterday.

“I am deeply sorry that we’re giving cause for concern to customers,” Toyoda said in an unscheduled interview on Jan. 29 with Japan’s NHK television network in Davos, posted to U.S. broadcaster ABC News’ Web site. “We’re preparing to explain the facts to our customers as soon as we can so that we can remove that anxiety.”

Critics aren't impressed with Toyota's response:

“They have wasted too much time without doing anything,” said Tatsuya Mizuno, director of Mizuno Credit Advisory. “Toyota used to be a company with foresight, always ready to take action, but now they have fallen very far behind the curve.”

While I may not like the company, they were one of the best run companies in the world. This is a very surprising blunder by the company. I guess part of this is because they aren't used to this kind of disaster.

Toyota Suffers, Honda Prospers

Toyota seems to be feeling the strain of the recent vehicle recalls

US Sales have dropped:

Toyota Motor Corp suffered a sharp drop in U.S. sales last month as its massive recall and unprecedented sales halt allowed rivals to grab market share from the world's largest automaker.

Here's what PR Consultant, Ong Huac Chuan, had to say:

"In moments of a business crisis, people want to see a company take full responsibility, be empathic to the victims and their families and be in control by outlining the problem and how they intend to solve it. They also expect the CEO doing all this," said Ong Hock Chuan, technical adviser of Jakarta-based PR consultancy Maverick who specializes in crisis management.

"Toyota seems to have failed in all counts. It's admission of the problem has been half hearted and almost reluctant, it has failed to apologize unequivocally to victims and their families, and its failed to articulate and communicate what it intends to do to regain control of the situation."

For a business, hellbent on being the market leader, Toyota seems to have failed miserably to show its customers that it cares about them.

On the other side of the docket, Honda raised its profit forecast:

Honda Motor Co (7267.T) lifted its annual guidance far beyond market expectations on Wednesday after cost cuts drove quarterly profit to the strongest in a year and a half, and said it anticipates further growth next financial year.

Executive Vice President Koichi Kondo:

"Under these sales conditions, I see a fundamental ability to make 100 billion yen in operating profit every quarter," Executive Vice President Koichi Kondo told a news conference.

He worries though that the recent Toyota recalls will have a negative effect on Japanese brands, including Honda:

"Toyota is the front-runner representing Japanese cars," Honda's Kondo said. "In that sense, we're somewhat worried that there may be a knock-on effect on other Japanese brands, but we'll need a little more time to gauge any impact."

I would hope people see through that and recognize Honda's long history of building excellent reliable cars.