Toyota Fights to Regain U.S. Traction

New North American chief Yoshimi Inaba wants to revitalize Toyota's North American lineup, particularly the lagging Lexus and Scion brands

By David Kiley

Toyota Motor's Lexus and Scion brands were textbook examples of how to launch new brands. But the automaker's new North American chief says the two need to be redefined and rethought for the future as Toyota (TM) reorganizes and assesses how it got caught so badly with excess manufacturing when the recession hit last year.

Yoshimi Inaba was dispatched to North America last month by new Toyota President Akio Toyoda, great-grandson of the company's founder, to fix what he has described as the automaker's most important market. Inaba is no stranger to the U.S., where he held senior posts between 1995 and 2003. He left Toyota headquarters in 2007 to run the airport near Toyota's headquarters, but says he found the job "not very challenging."

That won't be an issue in his new post. Toyota has long been considered a juggernaut in the U.S.—the company that's taken the most market share from Detroit. But Toyota finds itself with challenges all too familiar to General Motors and Ford (F); too much manufacturing capacity, multiple brands that it is finding difficult to manage, and products that aren't capturing the fancy of consumers as they once did.

Recession Isn't the Only Problem

Toyota's overall U.S. sales are down 39% during the first six months of this year, a deeper drop than Ford's, which are down 33%. But what is especially worrisome to Inaba is what appears to be a lack of clarity around Lexus and the collapse of Scion, which he had a direct hand in launching.

Inaba says he isn't so sure that Toyota's problems are related only to the recession. "This is my intent—to solve this. It was so profitable when I was here last, it must be something [besides the economy]," says Inaba.

U.S. Lexus sales are down 34% in the first half of the year—more than BMW (BMWG.DE) and Mercedes-Benz (DAI), which are both down 29%. The trouble is worse at Scion. The brand, with three products priced under $20,000, should have held up well during the downturn as many car buyers traded down. Instead, sales are down 66% from a year ago.

When it comes to Lexus, the issue is pretty clear: The luxury brand is far too dependent on just two of its nine models. The ES330/350 sedan and RX350 line account for two-thirds of sales. The GS sedan lineup—rear-wheel-drive sedans meant to take on German brands—haven't caught on, selling just 3,500 cars this year. "Lexus needs to find a way to get more consideration and higher sales volume for some of these other models, which haven't seemed to hit the mark like the other two," says Jim Hall of 2953 Analytics, a Birmingham (Mich.) design and marketing consultancy.

Lexus GS: Stuck in the Middle

Inaba sees two problems he needs to tackle: First, he says, Toyota has been making too many decisions about new models and designs in Japan. "We are becoming more regionally focused now and pushing decisions down to the places where the vehicles will be sold," he said. To that end, several "global" job titles have been eliminated. Second, he believes Toyota's vehicle designs must be jazzed up. "It's been a fair criticism that our designs do not have enough excitement," he said.

The GS, notes consultant Hall, has been a very good sedan, but it takes on neither the BMW 3 Series nor the Mercedes E Class in size, performance, or price. "It's in the middle and that can be a tough place to be," Hall says. "That car needs to take on one or the other in sales volume for Lexus to grow." Unit sales this year for five of Lexus' nine product lines will total less than 10,000 each.

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