Response to falling market too slow, says Toyota

'Suspense' and 'product planning' are not words you normally read together in the same sentence. But last year's market downturn for the Australian car industry (more here) created more drama for the back-room bods who decide what cars we'll drive than the entire canon of 'Nightmare on Elm Street' films.

Product planners at car companies around Australia -- the high-rollers of the automotive industry -- held their breath from July, watching and waiting for an upturn that never eventuated.

One poor month was not enough evidence in itself of a harsher downturn, so the car companies waited an extra month before they began to whittle back their forward orders for the rest of 2008.

"When you look at the first six months of last year, we were forecasting an annual market of a million and seventy thousand," says David Buttner, Senior Executive Director Sales and Marketing for Toyota.

"If you tracked the SAAR [Seasonally Adjusted Annual Rate] for the first six months, it was blowing out to a million and seventy, month over month...

"Then, in July, we had the first SAAR below a million -- and I guess everyone, including ourselves looked at that [and said] this is just an aberration or is the global crisis starting to come here?

"But you never want to adjust your targets, based on one month, so you wait for the next one. August, as a SAAR, came in around 900,000. That's when we recognised that -- ourselves and others -- we had to make some adjustment to our forward orders, from Japan or wherever we order our stock from.

"I think that late response by the industry has resulted in a plethora of stock that's around at the moment, because people were keen to hang on to their targets, in the hope that the market would hold up -- and it didn't get above 900,000 for the rest of the year.

"[That] resulted today in a market of just on a million and twelve thousand. By September, we were calling about a million and fifteen. I think most people were by that particular stage."

The Carsales Network put it to Buttner that Toyota, with its massive throughput and apparent faster response to the changing market has the edge over smaller importers. Buttner disagrees. 

"My honest, personal reflection is that we didn't act fast enough and therefore, we're pretty much in line with the rest of the industry, because in this game, the last thing you ever want to do is walk away from your target.

"It's the last thing I'd do, so you become the eternal optimist. On the whim of July, there was no way known you were going to adjust, because it could be an aberration, it could bounce back in August -- and it didn't bounce back.

"So, when most importers in Australia are sort of locked into two months out, you can't always get the flexibility to turn off the orders you've already placed -- on your parent or wherever you've placed your orders. And then it takes some time to make an adjustment, so you have this -- what I would call -- a buyers' market over the last three or four months, as each distributor is trying to wash off the excess stock that they have.

"So our fiscal [year] starts in April, we'd want to make sure by the end of March that we're back on our normal stock-carry so that we can get back to some orderly trading and just get rid of the stock that's hanging around at the moment."

If it sounds like Toyota is adopting a more conservative stance, that's true, but the company is also watching the market very carefully, waiting for a significant improvement in consumer confidence -- and that could happen any time. Indeed, there are signs that it's already happening.

Buttner says in effect that the economy and the market are sending car companies mixed messages. There are still lay-offs in wait for the mining industry and, as for the boom times, there'll be a trickle-down effect to other sectors of the economy now that we're entering a gloomier phase. But, contrary to the reactionary reporting from the mainstream media, there are indicators that consumer confidence hasn't completely evaporated and, in fact, may be making a comeback already.

"What we saw in the last quarter -- but November and December in particular -- was the return of the private buyer," says Buttner, on the strength of Toyota's own statistics. "Our private buyer share improved in November/December."

So Toyota at least suspects that private buyers could lead a market recovery in 2009, as long as this is not just a knee-jerk response to the savage discounting of new car prices by the car companies.