Toyota says Tundra making money despite discounting

http://www.reuters.com/article/tnBasicIndustries-SP/idUSN1035111420070910

on why they dropped incentives:

Lentz, who was speaking on the sidelines of a Toyota briefing for investors, said Toyota had offered less generous discounts in August because stronger sales in June and July had drawn down inventory to less than 40 days supply of sales.




makes sense, also explain why sales dropped, a short supply constricts sales and often will send customers to other brands.


More on why they have rebates:
But he said Toyota was finding that over a third of Tundra buyers were turning up at showrooms with vehicles that are worth less than the amount still due on the loans used to finance them.
The average amount of that "negative equity" for Tundra buyers facing that problem is $3,600, he said.


Yup, applies to all truck sellers, you need rebates to get people out of negative equity.

On off make trade ins
But he also said the Tundra was winning over customers from U.S.-based automakers for a 40-percent "conquest rate," with half of those buyers trading in full-size pickups from GM, Ford and Chrysler LLC.



Fan

makes sense, also explain why sales dropped, a short supply constricts sales and often will send customers to other brands.


Good post. Short supply makes some people wait for what they want. I'm not going to lie, last week I went to the Toyota dealer and the Tacomas outnumbered the Tundras litterally 10 to 1. And a few of the Tundras were stickered at over 45k. If I was in the market for a new Tundra, I'd wait.

^^^ The 10 to 1 thing, do you mean the trucks coming into service, or the trucks available for sale in the showroom?

On off make trade ins:

But he also said the Tundra was winning over customers from U.S.-based automakers for a 40-percent "conquest rate," with half of those buyers trading in full-size pickups from GM, Ford and Chrysler LLC.


Can I hear an "Ouch!" for the domestic makes?

If the new Tundra turns out as good as it appears, Detroit is really going to be hurting.

C

^^^ The 10 to 1 thing, do you mean the trucks coming into service, or the trucks available for sale in the showroom?

For sale. I may have exagerated about 10 to 1 but it seems there is a lower inventory of Tundras than Tacomas. I'll take the camera next time, there are rows of Tacomas (which could have used ones in there) and just a few Tundras, like Fan said low inventory.

For sale. I may have exagerated about 10 to 1 but it seems there is a lower inventory of Tundras than Tacomas. I'll take the camera next time, there are rows of Tacomas (which could have used ones in there) and just a few Tundras, like Fan said low inventory.It's the same at Kokomo Auto World and Team Toyota up by my house...incentives help sales...I haven't seen incentived on the Tacoma in quite some time...doesn't help thath they don't have that great of interest rates either. But with incentives, I always worry about lowering resale value (ie domestics).

Great information and post.

:thumbup:

For sale. I may have exagerated about 10 to 1 but it seems there is a lower inventory of Tundras than Tacomas. I'll take the camera next time, there are rows of Tacomas (which could have used ones in there) and just a few Tundras, like Fan said low inventory. our inventory definitely swings toward tacomas right now as we probably have about 60-70 tacomas and only 20-30 tundras. its also a slow production time as we are in the transition period from 07-08. Nor Cal region's inventory allocation has also been cut slightly for tundra and prius as other parts of the country are in more need for them.

our inventory definitely swings toward tacomas right now as we probably have about 60-70 tacomas and only 20-30 tundras. its also a slow production time as we are in the transition period from 07-08. Nor Cal region's inventory allocation has also been cut slightly for tundra and prius as other parts of the country are in more need for them.

We're running 2/1 Tundras/Tacos....120/60 at the moment....after several inbound shipments of Taco's.

My local Toyota dealership has about 30 or 40 Tundra's and maybe 5 or 6 Tacoma. Tundra's range from base model single cab to CrewMax Limited. I can see alot of people test driving Tundra's because they always come by the GMC dealership I work at. As for the GMC's, there are about 50 or 60 '07's. Yeah they aren't selling.

Regarding equity, my '06 Tacoma is worth about $5K more than I owe on it, and I've only had it 18 months. This is based on Kelly Blue Book value.

Toyotas certainly do hold their value very well.

^^^According to KBB my Tundra is worth more than I paid foir it eight months ago!

This article is vague and fails to provide any detail on how they measure to determine it is making a profit (plus the lack of any actual figures). Factor in the $1.2 billion spent building the San Antonio plant and the Tundra won't be in the green for a long time. Are they even including development costs?

It sounds more like spin to justify buying market share with resale value-eroding incentives. That may be a harsh statement but $5000 incentives on any new vehicle is absurd, especially when the goal appears to be chasing market share. That is the kind of stuff that got the domestics in trouble in the past.

This article is vague and fails to provide any detail on how they measure to determine it is making a profit (plus the lack of any actual figures). Factor in the $1.2 billion spent building the San Antonio plant and the Tundra won't be in the green for a long time. Are they even including development costs?

It sounds more like spin to justify buying market share with resale value-eroding incentives. That may be a harsh statement but $5000 incentives on any new vehicle is absurd, especially when the goal appears to be chasing market share. That is the kind of stuff that got the domestics in trouble in the past.Markup on vehicle is rediculous. Sell a vehicle below invoice and Toyota (or any other manufacturer for that matter) still makes money. Toyota makes more not having to pay BS union labor. You can't factor in the plant. It's not like that plant will be used to build ONLY Tundras. It'll be revamped to be able to produce other vehicles as well. Doesn't matter where they get the numbers....this was a stockholder release, and if I'm investing in Toyota, I'm damn happy they are still making money.

~19000 Tundra's sold per month, and 40% of those are conquest sales. . . . . That makes 7600 per month conquest sales. Of these 7600 conquest sales, only half are in the form of full sized trucks. So that makes 3800 Tundra sales per month coming from full size GMC, Chevrolet, Dodge, and Ford trucks. Split equally between these four makes, that's 950 trucks per month coming form any one of the domestic makes. . . . .hardly a blip on the full size truck market. . . .

To put this into perspective, Ford sells roughly 70,000 F-series trucks per month. . . . GM sells roughly 90,000 full sized trucks per month. Dodge sells roughly 32,000 Rams per month.


Don't get me wrong, I'm sure the domestics would like to have those extra 950 sales per month that the Tundra is taking, but it's not the impending disaster that some here would have you believe.

As to the incentives, here in Dallas, many dealerships have commercials stating $9,000 off V8 double cab Tundra’s. Those are likely the smaller V8, but $9,000 off a brand new truck in it's first year!!!!!!! Also, I frequent two auto complexes with nearly every make and model and there are plenty (like 30-40) Tundra's to choose from on those lots. Does Toyota dealer trade? I would think that if one dealership was having a hard time keeping a decent inventory of Tundra's in stock, he would be able to trade a dealership around here for their excess Tundra's.

^^^Not to beat a dead horse but Toyota's goal at least for now wasn't to instantly take over the full-size market. You have good points but Toyota just wants a piece of the pie, not the whole thing...I think Toyota realizes that's never going to happend but they are okay with that cause that wasn't the intention, it was to build a more capable truck to be better competitively against the other trucks in the market. Over time Tundra should start to take more sales, gradually, obviously at this point it can go either way.:thumbup:

This article is vague and fails to provide any detail on how they measure to determine it is making a profit (plus the lack of any actual figures). Factor in the $1.2 billion spent building the San Antonio plant and the Tundra won't be in the green for a long time. Are they even including development costs?

It sounds more like spin to justify buying market share with resale value-eroding incentives. That may be a harsh statement but $5000 incentives on any new vehicle is absurd, especially when the goal appears to be chasing market share. That is the kind of stuff that got the domestics in trouble in the past.

You do have a point about the investments and the development but according to international accounting rules companies are required to amortize these over a period of time. $1.2 Billion amortized over 8 yrs of 150,000 units annually is $1000 per unit. Similarly if the development of this vehicle cost say $2.4 Billion then the amortization would be $2000 per vehicle. Neither figure is terribly significant for a $30000 or $40000 or $50000 vehicle.

The IRS, the various state taxing agencies, the SEC all require the costs to be allocated in a similar manner. It allows investors to see if a vehicle ( or any product ) is being sold profitably on an ongoing basis. This is what is meant by the vehicle being 'profitable'. Every company in every product is required to do this.

Product pricing for vehicles is layered roughly like this..
Fixed Costs..
.. Preproduction Marketing Amortization
.. R&D amortization
.. Plant amortization
.. Equipment and Tooling amortization
.. Plant staff salaries
.. Headquarter Assessments
.. other fixed costs such as property taxes

Variable Costs..
.. Materials
.. Maintenance
.. Sub Assemblies
.. Direct Labor
.. Plant Utilities
.. Other misc variable costs as a result of production

Selling General and Administrative Expenses
.. Direct Marketing,
.. Advertising,
.. Incentives
.. Training
.. Staff Salaries for Marketing, Sales
.. Other misc SGA expenses

Gross Margin

Transportation to Retail Destination

Dealer Expenses
.. Holdback
.. Financing
.. Advertising
.. Vehicle Prep

Dealer Margin
..What we all negotiate when buying a vehicle

MSRP : $35000

That may be a harsh statement but $5000 incentives on any new vehicle is absurd, especially when the goal appears to be chasing market share.

Well, I just drove by the GM dealer the other day, and they had $10,000-off stickers on their Yukons.

Still think it's a stupid idea now the domestics are doing it, and worse?

C

~19000 Tundra's sold per month, and 40% of those are conquest sales. . . . . That makes 7600 per month conquest sales. Of these 7600 conquest sales, only half are in the form of full sized trucks. So that makes 3800 Tundra sales per month coming from full size GMC, Chevrolet, Dodge, and Ford trucks. Split equally between these four makes, that's 950 trucks per month coming form any one of the domestic makes. . . . .hardly a blip on the full size truck market. . . .

To put this into perspective, Ford sells roughly 70,000 F-series trucks per month. . . . GM sells roughly 90,000 full sized trucks per month. Dodge sells roughly 32,000 Rams per month.


Don't get me wrong, I'm sure the domestics would like to have those extra 950 sales per month that the Tundra is taking, but it's not the impending disaster that some here would have you believe.

As to the incentives, here in Dallas, many dealerships have commercials stating $9,000 off V8 double cab Tundra’s. Those are likely the smaller V8, but $9,000 off a brand new truck in it's first year!!!!!!! Also, I frequent two auto complexes with nearly every make and model and there are plenty (like 30-40) Tundra's to choose from on those lots. Does Toyota dealer trade? I would think that if one dealership was having a hard time keeping a decent inventory of Tundra's in stock, he would be able to trade a dealership around here for their excess Tundra's.

The 40% figure does come to about 7500 units rounding but they are all 1/2 ton pickups. It's not 3800 as you suggest. The key is that these 7500+ units are all in the 'heart' of the most profitable segment of the US truck market .. the retail buyer.

Initially Toyota has intentionally priced itself out of the basic work truck segment as well as the fleet sales. It's directed all its efforts to the individual buyer who is expected to pay 'retail'. The large buyer of several hundred vehicles who wants a stripped version at a figure just above manufacturing cost is not a targeted customer at this time. Those are left to the Big 3 to divvy up.

Back to the 7500 figure. This 'feels reasonable'. If the normal Gross Margin on a truck is $10000-$15000 depending on the equipment and configuration there is a huge amount of potential profit to be made. So if Toyota does decide to 'buy its way into this market' those 7500 additional units ( x 12 ) equate to something like 90000 additional units @ $10000 per. This is free money as it were; i.e. ~ $900 million, which can be used to do a lot of advertising or incentivizing.

This is additional to the 120,000 units normally sold or $1.2 Billion 'normal' margin.

Yes the few additional sales taken monthly from Ford or GM or Dodge are not going to break any of them but these occasional lost sales are all ending up in one place.

Incentives are a fact of life in this current economy. In fact for all 5 makers the IRS pays 50% of whatever the cost of the incentives are. The $9000 figure sounds high but not crazy. There is about $3000-$4000 each dealer has to work with. If the manufacturer's incentive is $3500 like it was in July then $7000+ is about right for a blowout vehicle.


It sounds more like spin to justify buying market share with resale value-eroding incentives. That may be a harsh statement but $5000 incentives on any new vehicle is absurd, especially when the goal appears to be chasing market share. That is the kind of stuff that got the domestics in trouble in the past.

Actually the total incentive was about $5000 but that figure was calculated on the basis of waived interest charges. The actual cash incentive was $3000-$3500 depending on the region. It makes perfect sense to spend $3000 to $5000 if doing so can generate more total profit.

2006 sales of the outgoing Tundra: 125,000 units at ( $10000-$4000 ) =$6000 margin per unit or $750 Million.
2007 sales ( est ) of the new Tundra: 200,000 units at ( $12000-$4000 ) =$8000 margin per unit or $1.6 Billion.

In the end it's only about total profit.

~19000 Tundra's sold per month, and 40% of those are conquest sales. . . . . That makes 7600 per month conquest sales. Of these 7600 conquest sales, only half are in the form of full sized trucks. So that makes 3800 Tundra sales per month coming from full size GMC, Chevrolet, Dodge, and Ford trucks. Split equally between these four makes, that's 950 trucks per month coming form any one of the domestic makes. . . . .hardly a blip on the full size truck market. . . .

To put this into perspective, Ford sells roughly 70,000 F-series trucks per month. . . . GM sells roughly 90,000 full sized trucks per month. Dodge sells roughly 32,000 Rams per month.




Wow, you are right. I thought for sure the Tundra would take tens of thousands of buyers away from detriot on a monthly basis. Even if the production capacity was only 200,000 units, that's no excuse. For it to be a success, they'd have to sell more than they produced.

Never mind it's conquest rate is higher than GM/Ford/Dodge trucks. For it to be a success, It has to be near 100 percent conquest.

Thanks for that anal ysis.

Fan

The 40% figure does come to about 7500 units rounding but they are all 1/2 ton pickups. It's not 3800 as you suggest.

No, read the quote from Toyota again.


But he also said the Tundra was winning over customers from U.S.-based automakers for a 40-percent "conquest rate," with half of those buyers trading in full-size pickups from GM, Ford and Chrysler LLC.


40% conquest rate = 7600 trucks per month coming from some other make and model of vehicle (be that a Titan, a Spectra, a Malibu, or a Wrangler). . . . ."with half of those buyers trading in full-size pickups" from the domestics (Silverado, Sierra, F-series, or Ram). Half of 7600 is 3800. So 3800 of the 19000 monthly sales of the Tundra are coming from customers who traded in a full sized domestic truck. Am I reading this wrong?

As far as Toyota intentionally pricing it's work truck variant out reach of most contractors, I would also disagree. Early during the Tundra launch Toyota admitted that they made a mistake by pricing the WT too high vs it's competitors. Besides, I doubt any company intentionally drives potential customers away buy pricing their vehicles too high.

And I don't disagree that Toyota appreciates the conquest sales, even if it is only 3800 per month. Also, I am sure Toyota enjoys the added profits these trucks bring in, there is a hefty margin on all trucks and SUV's, so any sale (due to large incentives or not) is likely to pad any manufactures bottom line.

Lastly, as to incentives, they are a necessary evil. The part that smacks of hypocrisy is some here (not you) use incentives to gauge a vehicles appeal, or lack there of. If Ford has $8000 on the hood of their 5 year old truck, it's seen as a weak product and Ford has to "convince" customers to buy the F-series. Yet, when Toyota plops $3000-$3500 (more around here) on the hood of their brand new truck, it's because the truck segment is shrinking, or the housing market is slumping.

Wow, you are right. I thought for sure the Tundra would take tens of thousands of buyers away from detriot on a monthly basis. Even if the production capacity was only 200,000 units, that's no excuse. For it to be a success, they'd have to sell more than they produced.

Never mind it's conquest rate is higher than GM/Ford/Dodge trucks. For it to be a success, It has to be near 100 percent conquest.

Thanks for that anal ysis.

Fan

Who pee'ed in your Cheerio's? Please take notes from Mr. Spyder's above post so that you too can be part of a meaningful (i.e no sarcasm) discussion. Maybe GMEngineer can teach you a thing or two about intelligent dialog. . . . or did he quit too?

And who said that Toyota needed to take tens-of-thousands of sales from the domestics per month for the Tundra to be a success. Not me. My previous post was to put these conquest sales in perspective. Some (you included) read these numbers as if they are some huge coup for Toyota, when in actuality, they are a mere fraction of what GM, Ford, and Dodge sell in a single month. Once again, I'm sure the domestics would love to have the ~1000 sales per month that the Tundra takes, and I have always said the Tundra would sell 200k this year. It's a competent truck, and the market will determine its success, no matter what fanfanfan says. . . . .

^^^According to KBB my Tundra is worth more than I paid foir it eight months ago!

So dana, are you saying KBB is incorrect or mistaken in the values they list? Is there another basis for determining a value prior to selling?

The prices of similiar trucks I see in my local paper's want-ads are commensurate with the value KBB lists.

Just curious.

^^^I really don't know. The last few times I traded a truck in I have been told KBB isn't a really good indicator of actual value.

Funny I paid 26,500 OTD on January 31 for my 06 Tundra DC 4X4.


Private party sale for excellent condition (which it is) is 28190 :eek:

Dealer trade in is 25225.

^^^I really don't know. The last few times I traded a truck in I have been told KBB isn't a really good indicator of actual value.

Funny I paid 26,500 OTD on January 31 for my 06 Tundra DC 4X4.


Private party sale for excellent condition (which it is) is 28190 :eek:

Dealer trade in is 25225.Hells yeah:thumbup: Time to trade that lease in for that 5.7 Dana:clap:

I believe dealers would tell you it's not a reliable measure of value. I also know they were really dealing on those previous generation Tundras. I looked at them, but they just weren't for me.

I think it's at least possible that, considering the discounts and deals on these Tundras, and the way Toyotas hold their value, that your truck is worth more than what you paid eight months ago. :eek: Though, if true, this should be a :)

I've used KBB as the basis for determining price for two previous cars I sold -- a Toyota Tacoma and Honda Accord -- and they both were priced right in there with others for sale at the same time.

I believe dealers would tell you it's not a reliable measure of value. I also know they were really dealing on those previous generation Tundras. I looked at them, but they just weren't for me.

I think it's at least possible that, considering the discounts and deals on these Tundras, and the way Toyotas hold their value, that your truck is worth more than what you paid eight months ago. :eek: Though, if true, this should be a :)

I've used KBB as the basis for determining price for two previous cars I sold -- a Toyota Tacoma and Honda Accord -- and they both were priced right in there with others for sale at the same time.

delete, nothing to see here.

Hells yeah:thumbup: Time to trade that lease in for that 5.7 Dana:clap:


;) The thought has crossed my mind. :lol: .....my wife would kill me.

No, read the quote from Toyota again.



40% conquest rate = 7600 trucks per month coming from some other make and model of vehicle (be that a Titan, a Spectra, a Malibu, or a Wrangler). . . . ."with half of those buyers trading in full-size pickups" from the domestics (Silverado, Sierra, F-series, or Ram). Half of 7600 is 3800. So 3800 of the 19000 monthly sales of the Tundra are coming from customers who traded in a full sized domestic truck. Am I reading this wrong?

As far as Toyota intentionally pricing it's work truck variant out reach of most contractors, I would also disagree. Early during the Tundra launch Toyota admitted that they made a mistake by pricing the WT too high vs it's competitors. Besides, I doubt any company intentionally drives potential customers away buy pricing their vehicles too high.

And I don't disagree that Toyota appreciates the conquest sales, even if it is only 3800 per month. Also, I am sure Toyota enjoys the added profits these trucks bring in, there is a hefty margin on all trucks and SUV's, so any sale (due to large incentives or not) is likely to pad any manufactures bottom line.

Lastly, as to incentives, they are a necessary evil. The part that smacks of hypocrisy is some here (not you) use incentives to gauge a vehicles appeal, or lack there of. If Ford has $8000 on the hood of their 5 year old truck, it's seen as a weak product and Ford has to "convince" customers to buy the F-series. Yet, when Toyota plops $3000-$3500 (more around here) on the hood of their brand new truck, it's because the truck segment is shrinking, or the housing market is slumping.



Who pee'ed in your Cheerio's? Please take notes from Mr. Spyder's above post so that you too can be part of a meaningful (i.e no sarcasm) discussion. Maybe GMEngineer can teach you a thing or two about intelligent dialog. . . . or did he quit too?

And who said that Toyota needed to take tens-of-thousands of sales from the domestics per month for the Tundra to be a success. Not me. My previous post was to put these conquest sales in perspective. Some (you included) read these numbers as if they are some huge coup for Toyota, when in actuality, they are a mere fraction of what GM, Ford, and Dodge sell in a single month. Once again, I'm sure the domestics would love to have the ~1000 sales per month that the Tundra takes, and I have always said the Tundra would sell 200k this year. It's a competent truck, and the market will determine its success, no matter what fanfanfan says. . . . .

I overlooked the nuance. You're correct in that the conquest rate is about 3800 truck units. Another 3800 units come from other vehicles apparently.

As to intentionally avoiding the WT market, I know that this was the intention. It's not direct from the key decision makers but it is from those responsible for making the truck sales go. Now this year as both plants come fully on stream ( TX only reached a 2nd shift in the summer ) for 2008 they are offering the Tundra trims ( WT ) in every configuration and at lower prices. Part of the reason for not targetting the WT market was that production was ramping up and there were/are more lucrative situations to place the few vehicles that they had. The end of this year and all of 2008 will be different I think.

^^^Not to beat a dead horse but Toyota's goal at least for now wasn't to instantly take over the full-size market. You have good points but Toyota just wants a piece of the pie, not the whole thing...I think Toyota realizes that's never going to happend but they are okay with that cause that wasn't the intention, it was to build a more capable truck to be better competitively against the other trucks in the market. Over time Tundra should start to take more sales, gradually, obviously at this point it can go either way.:thumbup:

First u say, at least for now wasnt to take over the full size market, so youre implying that they will take it someday in the future... but in the next lines u say, toyota realizes thats never going to happend cause that wasnt the intention, quite contradictory statements from the same person. Anyway , of course nobody, intended or not, can take over the full size market, least "instantly". Everybody, even toyota, has to only settle for a piece of the pie, its impossible to own the whole thing. Toyota wants to sell, more and more every month, thats their real intention, thats why they have invested huge money on advertising , incentives, etc etc.

Great posts and analysis from kdhspyder and engineer, BRAVO guys! :clap:

;) The thought has crossed my mind. :lol: .....my wife would kill me.
:lol:

If you're not in a rush, while your current Tundra's doing great, you can always wait until the 08 Tundra arrives, when they sort out the 1st year bugs. But yeah, it depends on the deals you might be able to get now, and the ones you won't get for next year's model. Decisions, decisions, decisions :disappoin:D

^^^There lies the problem, my 06 is great, but if the right deal comes along......it wont happen.