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Model of Efficiency : Toyota Guns for U.S. Sales With Cheaper-to-Make Camry

September 26, 1996|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — For years, Big Three auto executives openly worried about cost-cutting efforts by Toyota Motor Co. As the yen's value rose against the dollar, the rumors flew that the already-lean Toyota was getting leaner.

The speculation was right. The proof is now on display--to the Big Three's dismay--in the 1997 Camry, a fourth-generation mid-size family sedan that goes on sale today in dealer showrooms nationwide.

Not only is the Camry priced lower--by $280 to $1,745, depending on the model and equipment--but to most trained eyes it is also an improvement over its predecessor, with more features, power and refinements.

As such, some see the Camry as the leading edge of a newly competitive Japan as that nation emerges from a recession that sent many of its top companies back to the drawing boards. Now they are poised to exploit both their own heightened efficiency and a more advantageous dollar-yen relationship.

"The Camry represents the beginning of a trend," said Chris Cedergren, a California-based auto industry forecaster. "We will be seeing price cuts in the future that are even more dramatic."

This is sure to intensify competition in the U.S. auto market, with the Japanese positioned to regain some of the market share they lost in the early 1990s, when a strong yen pushed their prices higher.

The Camry, Toyota's mainstay since its introduction in 1983, is already a strong player in the mid-size market, the largest and most important. And despite the car's ordinary styling, some auto reviewers are so impressed with the 1997 model that they are predicting it could push the nameplate past Ford's Taurus and Honda's Accord for the title of No. 1-selling car in America as early as this year.

Toyota executives are more coy about their ambitions, but they clearly relish the speculation.

"Is it in the realm of possibilities that Camry can be No. 1? Yes, but that is not our target," said Don Esmond, a vice president for Toyota Motor Sales USA.

Taurus supplanted the Accord in 1992 as No. 1, but so far this year the Accord is maintaining a narrow lead. Camry is a close third. Toyota projects sales of about 340,000 Camrys this calendar year--possibly more in 1997. Through August, before the new model's release, Toyota had sold 248,437 Camrys, just 1,775 shy of Taurus and 3,184 behind Accord.

In California, Camry is the third-best-selling vehicle behind Honda's Civic and Accord.

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The Camry's latest make-over has broad implications for the U.S. auto industry. The vehicle, conceived in an era of severe currency pressures, represents a new paradigm of Japanese efficiency and competitiveness.

When Toyota sat down to design the latest Camry, it was facing a prolonged economic slump in its home market and a strengthening yen that was putting it at a substantial retail price disadvantage--as much as $2,000 per car in the United States.

Much as Detroit has been doing for years, Toyota--traditionally the "chinning bar" for other world auto makers measuring their efficiency--set about cutting its costs even further. The goal was to be able to make money even if the yen went below the range of 85 to 90 per dollar, analysts said. Indeed, at one point, the yen hit 79 to the dollar before recovering to the current level of about 110.

Toyota executives claim that the currency fluctuations are less important than in the past since 80% of the Camrys they sell here are assembled in Georgetown, Ky., and with 75% local content, including labor. Analysts, however, say the yen's value is still an important factor for Toyota's U.S. profitability.

Toyota won't reveal how much costs have been reduced for the new Camry, but analysts estimate it costs the company $2,500 to $3,000 less to build this version than the previous one. So even with lower prices, its profit margin increases sharply.

Steve Kosowski, an analyst for AutoPacific Group in Santa Ana, estimates that Toyota barely broke even on the 1992-96 Camrys but will earn $1,500 to $2,000 on the new model. The vehicle retails for $16,398 to $24,018.

The cost cutting took various forms. Working with designers and engineers both in Japan and the United States, the company made significant changes to make the vehicle easier to develop and produce.

Kosaku Yamada, chief engineer on the Camry, said the front bumper, for example, was redesigned to use seven fewer parts than the bumper on the '96 version.

"Not only does it cost less to produce," Yamada said, "but it's lighter in weight, provides better safety protection and is less expensive to replace in case of an accident."

The company also reduced production costs by eliminating the coupe and station wagon, which together accounted for just 7.5% of total Camry sales.

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At the same time, Toyota took steps to "de-content" the vehicle--that is, reduce the number of parts or components that can't be seen, lowering costs and simplifying assembly without hurting quality or performance.

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