Friday, March 26, 2010

Why Does Toyota Make Big Honkin SUV's and Pickup Trucks?

For a company that claims to be green, Toyota makes a lot of large SUV's and pickup trucks. What could be more natural than making these honking big luxury all wheel drive vehicles if it makes money? Well, it's not that simple.

The only place in the world where these large gas-wasting vehicles sell well is the USA, and that is because of low gasoline prices, which are kept low by the political danger of imposing taxes on fuel in America. And even in America, as we have seen, the price of gas sometimes rises to the point that vehicle sales decline. (especially the gas-hogs)

Toyota started off in the sixties sending fuel efficient cars to the USA because that's what they made for their home customers, and that's what they understood. Not only that, but since 1963 there has been an import duty on light trucks coming to the USA of 25%. It is called the "Chicken tax" as this import tax is applied to potato starch, dextrin, brandy, and light trucks in retaliation for a European import tax on American chickens. OK, sorry that this is getting complicated but really so many things we consider natural came about through unnatural and complicated legislation.

Anyway, Toyota continued to make cars for the US, content to ignore the truck market. Then the US congress began to pass laws requiring increasingly strict standards for fuel economy, crash safety, and clean burning engines. Toyota complied, and set their engineers to work conforming to these regulations. Meanwhile, Detroit began to exploit a loophole they had at their disposal, by getting light trucks exempted from all these laws. Once again, Toyota more or less ignored the unfairness of this, and continued to build fuel efficient cars. The American car makers, on the other hand started pushing the definitions of what exactly was a light truck. Eventually, Detroit managed to include all minivans as light trucks and even started making pickup trucks with no bed at the back, calling them SUV's. Toyota still had no response, but things were getting worse. When gasoline prices declined in the nineties, sales of SUV's, pickup trucks and minivans increased to the point that cars became an endangered species in the USA (literally!). And finally, I guess the thing that pushed Toyota over the edge was the proposed CAFE standards.

Although CAFE (Corporate Average Fuel Economy) did not pass, it threatened Toyota's existence in the US market. The law proposed a percentage improvement in fuel economy on each corporation, over time, starting with their existing fuel economy average. The problem was that if Toyota was starting with mostly fuel efficient cars, it would have to compete against American makers who were starting with wasteful vehicles. It is hard to increase the fuel economy of a Corolla, but easy to do if you are starting with fuel wasting American style vehicles.

As a result of (or sometimes anticipating) all these pressures, Toyota decided to enter the truck market in the USA, so that they would be on an equal footing with the Detroit companies in case CAFE ever became law. To do so, they set up truck factories in the USA, because the chicken tax of 25% would have made them uncompetitive to import from Japan. And now we have the Toyota Tundra and the Toyota Sequoia, and several other big honking things you would not expect to find many years ago in a Toyota showroom.

Last year, both GM and Chrysler declared bankruptcy. They were relying too heavily on their big truck sales for profits, and when fuel prices went up along with job losses, many people stopped buying the trucks and SUV's. Toyota fared better and became the world's biggest automaker because of their superior line of cars.

But now Toyota is facing billions of dollars in lawsuits in the USA because of the not yet proven "runaway acceleration" syndrome.

So it's not always as simple as you might think.

Picture: Photoshop was not used in this picture. I did not reduce the size of the person in the drivers seat. The Sequoia is just a very big vehicle, at least for a Toyota.


  1. Toyota has, of course, simply catered to market demand; the North American (especially U.S.) market has demanded big vehicles.

    In fact, a large part of Toyota's (and Honda's) success in North America was as a result of the first Oil Shock of 1973 (Yom Kippur War) when oil prices more than doubled, from $20 to $40 on an inflation-adjusted basis, making fuel efficient vehicles attractive.

    But consumers quickly became used to the new gasoline price levels, and large vehicle sales resumed. Until the second Oil Shock, the Iranian crisis of 1979, when prices jumped again, from $40 to $60 a barrel.

    The Reagan administration then made the questionable policy decision to suck domestic sources dry. Which had the result of keeping energy costs artificially low for an extended period.

    The low gasoline prices through the 1980s and 1990s which, combined with the gaming of the CAFE rules, triggered the 'SUV Boom' - essentially an 'arms race' where motorists moved to larger and larger vehicles (reaching its height of absurdity in the unlamented Hummer) in an effort to be 'safer' than their neighbour.

    The import manufacturers were forced to respond to that market by offering larger vehicles. A response that resulted in curious aberrations such a Porsche SUV!

    When the domestic supply imbalances triggered rapidly escalating oil prices (reaching a high of $125 per barrel in 2008) sales of large vehicles dropped precipitously.

    Although energy prices have recently calmed somewhat as a result of the recession (currently in the $80 a barrel range) the nature of the oil markets is that relatively small demand increases (or supply disruptions) can have a disproportionate impact on price.

    We can expect a return to $100+ oil prices in the near term, and many analysts estimate that the 'true cost' (i.e. including externalities) of oil is actually in excess of $300 per barrel.

    Although North American manufacturers have seen the writing on the wall since 1973, they chose to ignore it, reaping the low hanging fruit of the SUV Boom during the 1990s; a series of decisions which lead to their economic collapse in the recent recession.

    The domestic automobile companies now have, as a result, very little product which to offer the consumer who wants a fuel-efficient vehicle (and, NO!, hybrid SUVs are not the answer) and foreign manufacturers, especially Toyota, are much better equipped to respond to the changing market demand, with existing product more suitable for the emerging oil price realities.

  2. Mary Ann's cousin in Holland has a vehicle I never heard of, the Yaris Verso. It's like a minivan version of the Toyota Yaris. I even found a picture of one on the internet, dressed up like an SUV with the side step and the Texas bumper.

    Yaris Verso

  3. Gosh! Putting a Bambi Slayer on the front of that Verso is like putting an underwire bra on an 8-year-old ... LOL!!

    But, seriously, it's a shame that none of the really fuel efficient models are being marketed in North America ... because the manufacturers believe that anything small, with low horsepower numbers, will not sell here.

    Perhaps their belief is based on the limited success of introductions such as the Geo Metro (AKA Pontiac Firefly, Chevy Sprint, &c.) with its 1 litre, 3-cylinder, 55 HP engine, discontinued in 2001.

    It's noteworthy that, of the '15 most fuel efficient' cars sold in Europe, all of which achieve 4.2 litre/100 Km or better, only one (Toyota's flagship Prius) is available in North America.

    And where models are shared across markets, the North American engines are invariably thirstier.

    You referenced the Yaris ... Europeans can select a 1.4 litre diesel sipping 3.6 litres/100 highway Kms. The North American model is fitted with a 1.5 litre gas engine guzzling 5.5 litres/100 Km (over 50% less efficient).

    For the North American market, manufacturers seem to believe that anything under 100 HP will simply not sell. The European Yaris diesel produces only 90 HP (DIN) whereas the North American version exceeds the 100 HP threshold ... pumping out a massive 105 HP ... LOL!

    Of course, the Euro version does produce 150 ft-lb of torque (a more important measure in my humble opinion) compared to the miserly 103 ft-lb of the North American model.

  4. Our 1992 Honda Civic "VX" model was specifically designed by Honda to beat the gas mileage of the Geo Metro, and was rated at 72 MPG highway (Canadian gallons). It cost more than the regular Civic, had skinny tires, a 1.5 l variable valve timing gasoline engine, no automatic or A/C available. So it won the MPG war but lost sales and was discontinued. We never achieved 72 mpg, but once hit over 60, and frequently got about 55 mpg. Our Toyota Matrix is usually around 37 mpg.