Tough market awaits Toyota’s latest Prius

by Alan Ohnsman

Bloomberg

Toyota Motor Corp. is poised to introduce its 2010 Prius, the world’s top-selling hybrid, to a shrinking U.S. auto market that now includes a cheaper, revamped competitor from Honda Motor Co.

With a pledge to “build to demand,” the goal of selling 180,000 units in the car’s first year starting in mid-2009 may have to be dialed back, Bob Carter, vice president for U.S. sales, told a recent briefing in Yountville, Calif.

Fuel at less than half of last year’s peak and the weakest industry sales since the early 1980s are casting doubt on Toyota’s plan to revive the model after 2008 deliveries fell 12 percent. Even with improved mileage, the Prius also may lose buyers in the recession to Honda’s gasoline-electric Insight.

“This is a car that can do 90 percent of what Prius can do in terms of fuel economy, with 90 percent of the size of Prius, selling for about 90 percent of the cost,” said Aaron Bragman, an analyst for IHS Global Insight. “People are very careful about purchase decisions right now. Maybe 90 percent is enough.”

Toyota said the new Prius averages 80 km per gallon in city and highway driving, or 6.4 km more than the current car, even though it’s more than 45 kg heavier.

Carter declined to provide prices for the Prius, which now retails between $22,000 and $24,270. Honda has said it may set a base price of less than $20,000 on the Insight, a five-passenger hatchback that will get 65.6 km to the gallon and reach showrooms in April. The original Insight was a two-seater that in 1999 became the first hybrid sold in the U.S. The Prius arrived in 2000.

While the Insight may drain a few sales from the Prius, the compact-class Honda won’t compete directly with the midsize Toyota, Carter said.

“The market has the room for both Prius and Insight, in their respective segments,” Carter said.

A bigger challenge for Toyota may be the changes in the U.S. market since the first seven months of 2008, when gasoline surged to a record $4.114 a gallon and dealers’ Prius stocks could be measured in hours, not days.

“Our inventory people at one point calculated a 0.3-day supply,” Carter said. “I’d never seen that before.”

A 54 percent plunge in U.S. retail gasoline from its July record through Feb. 27 tempered demand for hybrids. Industry sales crumbled, battered by a recession that sent consumer confidence tumbling last month to its lowest level in 42 years of record keeping.

“We’ve got to see where this market is going and certainly we will build to demand,” Carter said.

Toyota’s first-year sales target would put the model back close to its level in 2007, the car’s best. In road tests earlier this month by Bloomberg, the new Prius averaged 76.8 kpg to 84.8 kpg in California’s Napa County.

Besides boasting improved fuel economy, the Prius will be available with a solar roof to cool the cabin, an optional self-parking feature and cruise control that adjusts speed to maintain a set distance from vehicles. Toyota is still working on a so-called plug-in model that can be recharged with a household outlet, like the Chevrolet Volt being developed by General Motors Corp.

Production will start in April in Tsutsumi, Aichi Prefecture. The December decision to suspend construction of a $1.3 billion Prius factory in Mississippi reflected the depth of the contraction in the U.S., Toyota’s biggest market.

“We’re just waiting for the U.S. market to come back before we make any further investment,” spokesman Mike Michels said.

The goal for the redesigned Prius was to improve fuel economy, comfort and power, and to do so while chopping about half the expense of the hybrid parts, including the nickel-metal hydride battery pack and electric motor, Akihiko Otsuka, the car’s chief engineer, said.

In the end, the savings on hybrid components compared with the current Prius was only “about 30 percent,” Otsuka said. Prices for commodity metals and other materials complicated efforts to wring more costs out of the new system, he said.

¥7,100 Toyota raise

NAGOYA (Kyodo) Toyota Motor Corp. plans to fully accept its union’s demand for a regular wage hike averaging ¥7,100 during this spring’s wage talks, according to sources.

Management initially hinted at the possibility of cutting regular wage hikes. But it decided to keep the periodic wage increase intact as a way of urging union members to cooperate to help the automaker’s flagging earnings recover.

But Toyota, which projects a group net loss of ¥350 billion for the 2008 business year to March 31, has not changed its policy of not accepting a pay-scale increase, the sources said.

On bonuses, the union is seeking an amount equivalent to five months of salary plus ¥200,000, but a management official said the additional ¥200,000 would be “difficult from a common-sense standpoint.”

Fuji forecast widens

Bloomberg

Fuji Heavy Industries Ltd., the maker of Subaru-brand cars as well as aviation components, widened its loss forecast after writing off parts supplied to bankrupt American aircraft-maker Eclipse Aviation Corp.

Net loss may total ¥23 billion for the year ending March 31, compared with a previous estimate of ¥19 billion, Fuji Heavy said in a statement Tuesday. The Tokyo-based company won’t pay its yearend dividend for the first time in 14 years.

Fuji Heavy, which supplied wings to Eclipse, had ¥6.58 billion in inventory with the light-jet maker, which filed for bankruptcy last year. Fuji Heavy decided to take the charge after Eclipse’s note-holders said last month the aircraft maker should be liquidated because it can’t complete a sale to its parent.

Fuji Heavy also wrote off ¥3.16 billion for its accounts receivable and investments in Eclipse last quarter, the statement said.